Proposed changes to R&D tax relief claims

There are significant proposed changes to the UK’s R&D tax relief scheme which will come into effect for accounting periods beginning on or after 1 April 2023. There is a welcome extension to qualifying costs and activities to include pure maths research, the cost of datasets, and the cost of cloud computing services.

However, there are also more restrictive measures proposed, designed to limit perceived abuses, and boost the economic benefits to the UK arising from the R&D tax relief schemes.

To ensure the maximum benefit to the UK economy from the R&D schemes, any costs within R&D claims relating to R&D subcontracted to third parties or performed by third-party workers will be limited to focus on UK-based activity and/or individuals taxed within the PAYE scheme. There will be some narrow exemptions where factors such as geography, environment, regulatory or legal requirements mean that the R&D could not reasonably be undertaken in the UK. R&D undertaken for UK claimants by third parties overseas due to lower costs or better availability of workers cannot be included.

Going forward, companies will need to inform HMRC, in advance, that they plan to make an R&D claim. They will need to do this, using a digital service, within 6 months of the end of the period to which the claim relates. Companies that have claimed in one of the preceding three periods will not need to pre-notify. HMRC will also have additional powers to remove R&D claims from tax returns.

Professional bodies and accountancy firms are trying to get these measures watered down or repealed as they are potentially very onerous for start-ups and international businesses.

We will continue to monitor the situation and keep you updated on any further changes. If you have any queries in the meantime, please do speak to your usual JS tax contact at tax@jsllp.co.uk.