The government will publish draft legislation in the summer of 2022. The legislation will then be included in Finance Bill 2022-23 and take effect from April 2023.
Recent data suggests a loss of over £300 million due to fraud and error in R&D claims. In such cases, companies had claimed cash through the payable tax credit, despite having no R&D activity. Moreover, HMRC have also identified structures that had been set up with the intention to claim the payable tax credit, despite there being little employment or activity in the UK.
From April 2023, SMEs will be limited to claiming a maximum of £20,000 in R&D tax credit, plus 300% of their total Pay as you Earn (PAYE) and National Insurance Contributions (NICs) liable for the period.
Companies are exempt from this condition if their staff are creating or managing Intellectual Property (IP), or if they do not spend more than 15% of their qualifying R&D expenditure on subcontracting R&D, or on the provision of Externally Provided Workers (EPWs). More information on the cap on R&D can be found here.
HMRC have also announced that there will be changes to the way in which companies claim R&D tax relief. From April 2023, all claims will have to be made digitally, with the exception of companies exempt from the requirements to deliver a Company Tax Return online.
Moreover, the claim must include a report with details of the claim – i.e., on what expenditure the claim covers; the nature of the advance sought; the field of science or technology and the uncertainties that have been overcome. More information on how to write a technical narrative can be found here.
In addition to this, the claim will need to be endorsed by a named senior officer of the company whilst details of any agents who have advised the company on compiling the claim will also need to be included.
These changes are a result of the review of the two R&D tax relief schemes which were launched in Spring Budget 2021 alongside a consultation that ran from 3 March 2021 to June 2021. Full details of the changes and what SMEs can expect can be read in this Tax Administration and Maintenance Day report by HM Treasury.
SME R&D tax relief is one of the best tax reliefs available to both loss-making and profit-making companies.
It helps innovative businesses undertaking R&D-related activity claim a generous corporation tax deduction or a cash refund from HMRC.
Profit-making SMEs can reduce their corporation tax bill or receive a corporation tax repayment for any corporation tax already paid.
Losses generated can be surrendered in exchange for a tax credit/cash refund at 14.5%. The amount available is the lower part of the R&D enhancement and the trading loss, post R&D.
Read more on R&D tax relief for SMEs.
Partner - Corporate and R&D Tax
Corporate and R&D Tax Director
FOR GENERAL INFORMATION ONLY. The information provided in this article is for general information only and does not constitute any specific advice or guidance. Whilst every care has been taken in the preparation of this article, it may contain errors and/or omissions. Always seek professional advice before taking any action. Last updated Feburary 2022.
