Quite a few changes have been happening with R&D tax relief over the last year or so and the Government has just announced the next on the list.  The current SME and RDEC schemes will be replaced with a new merged RDEC-style scheme for accounting periods starting on or after 1^st April 2024.  The definition of a qualifying project will remain the same, but the big impacts will be seen in terms of which company makes the claim when more than one is involved, subsidised expenditure, overseas costs and the benefit itself.

Who can claim when more than one company is involved?

The biggest impact here is that the Government is giving a greater level of clarity over who can make the claim.  Currently, this is a highly contentious issue as since mid to late 2021, HMRC has stated “Any activities carried out in order to fulfil the terms of a contract are considered to have been contracted to the company.” which is in contradiction to its previous statement: “each case will need to be judged on its particular facts. As part of any examination it may be useful to examine the degree of autonomy enjoyed by the person engaged, the ownership of intellectual property, and the economic risk in any arrangements”.

This has created a lot of confusion, especially as the more recent statement has been applied to claims submitted before the statement was even made!  HMRC seems firm in its stance currently but is facing a lot of push back and many are eagerly awaiting first tier tribunal decisions on this issue.

Under the new merged scheme, the Government shows a clear desire for the company making the decision to undertake R&D to be the one that claims the relief unless the decision maker is a non-UK company in which case the UK subcontractor may make the claim.

Subsidised Expenditure

Under the current SME scheme, subsidised expenditure must be deducted from the R&D claim.  These rules will not apply under the new scheme.

Overseas Costs

Payments to overseas subcontractors can only be included if they are Qualifying Overseas Expenditure which will severely reduce the amount of overseas expenditure claimable.

Claim Benefit

Currently, the benefit of a claim depends on the scheme (SME or RDEC) and the date the expenditure was incurred (pre/post 1^st April 2023).

Under the new scheme, the benefit of a claim will be an above-the-line credit of 20%.  The exception to this will be for loss-making R&D intensive SMEs who will continue to receive an 86 percent enhanced deduction on their qualifying R&D expenditure and will be able to claim a repayable tax credit of 14.5%.

If you have any questions on this blog or anything R&D related, please contact us at [email protected].

Posted: 01 Dec 2023