Research and Development (R&D) tax relief reform

HMRC recently published their draft guidance around how the mechanics of the relief is due to change. Some of these changes include extending the range of qualifying expenditure, a refocus on inward innovation and enhanced claim management using digital input.

The proposed changes will see the introduction of expenditure previously deemed ineligible, whilst also putting measures in place to allow HMRC to fight against the number of spurious or fraudulent claims being submitted. 

These changes will take effect for accounting periods from 1^st April 2023. Consideration of these draft rules will have to be given where a company's accounting period overlaps the date from which the new rules come into effect. 

Extending qualifying expenditure 

This change in legislation has been well publicised in recent months. The purpose is to incentivise modern computational approaches, and as such, qualifying expenditure now includes: 

• The cost of data sets and cloud computing, whilst 
• Removing the exclusion of pure mathematics 

Refocusing on inward innovation

The cost of subcontractors and externally provided works will be limited to focus on UK activity only, with some narrow exemptions in place. 

These exemptions will not include costs or workforce availability. 

Enhanced claim management 

All claims for R&D tax relief will need to be submitted digitally (unless a company is exempt from filing online). All digital claims will need to provide detailed analysis of the qualifying costs and brief explanations of the R&D taking place. 

HMRC need to be informed in advance of a company making a claim and the application must be made within 6 months of the end of the financial period in question. 

Other changes include:

• Amending the time limit for making a claim to two years from the end of the period of account to which they relate 
• The new Health & Social Care Levy also represents a new cost, legislation will be updated to enable this cost to be claimed.