Digital only

Claims for R&D relief now need to be submitted digitally via a new web portal. This will enable more efficient monitoring and evaluation of claims, reduce fraudulent claims, and ensure companies that genuinely meet the eligibility are the ones that benefit. But it does potentially add another layer of admin.

More details required

From 1 August 2023, all claims must be accompanied by an additional information form, which gathers precise details about the nature of the research and development activities, project timelines and a breakdown of expenditure, to illustrate how claimed costs align with specific R&D activities.

Companies are expected to demonstrate the innovative and experimental nature of their work, as well as detail the challenges and uncertainties faced during the research and development process. Failing to submit the additional information means your claim won’t be processed.

Designated senior officer

Each claim must now identify and name a designated senior officer from the claimant company, who is responsible for taking ownership of the R&D claim, providing accurate information and ensuring compliance with the requirements.

R&D agent details

Also new: the business must provide the full details of the R&D agent who advised the company on compiling the claim. This includes information about the agent's qualifications and expertise in handling R&D relief claims. By disclosing this information, the tax authorities can assess the credibility of the agent and the reliability of the advice provided to the claimant.

Claim notification

Another important change: companies are required to notify HMRC in advance, through a digital service, if they plan to make an R&D claim. This notification needs to be done within six months of the end of the accounting period to which the claim relates. Failing to submit the required pre-notification will result in the claim not being accepted.

If a company has consistently made R&D claims in the preceding three years, however, claim notification may not be necessary.

Datasets and cloud computing

Good news: the scope of qualifying expenditures for R&D tax relief has been expanded to include the costs of datasets and cloud computing.

This extension acknowledges the significant role of data and computing resources in driving innovation, and encourages businesses to adopt and leverage these technologies in their R&D activities.

Increased tax credit rate

And finally, loss-making R&D-intensive firms can receive a higher cash payment of 14.5%, instead of the standard 10% – provided their qualifying R&D spend is at least 40% of their total expenditure during the same financial period.

This measure will be part of the Finance Bill process and, once legislated, will apply from 1 April 2023. This means that companies can start benefiting from the updated rates and provisions for their qualifying R&D expenditures incurred on or after that date.

Cost reduction

R&D activities often involve substantial costs, including expenses related to staffing, equipment and materials, plus overheads. R&D tax relief provides a mechanism to reduce these costs by offering tax incentives, such as deductions or credits, which effectively lower a company's tax liability. This cost reduction helps alleviate the financial burden of conducting R&D and encourages companies to allocate resources towards innovation.

Increased funding for R&D

By reducing the costs of R&D, tax reliefs make it more financially feasible for SMEs to invest in research and development. These incentives free up funds that can be reinvested into R&D activities, allowing companies to allocate resources for experimentation, technological advancements, and product or process improvements.

Stimulating innovation

With your costs reduced, you can feel empowered to challenge the status quo, explore new ideas, and develop a culture of innovation within your business. SMEs sometimes carry out R&D projects, such as improving existing processes, without realising they’re eligible for tax relief. It’s important to underline that these incentives aren’t only applicable to larger companies. 

Competitive advantage

Businesses that actively engage in R&D and leverage tax reliefs gain a competitive edge in the marketplace. By investing in research and development, SMEs can develop innovative products, improve operational efficiency, enhance customer experiences and stay ahead of their competitors.