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Be ready for changes to R&D tax reliefs in 2023

If you rely on R&D tax reliefs as part of your plans for growth and innovation, then you need to be ready for changes to R&D tax reliefs in April 2023.

From April next year, there will be several changes to the rules surrounding R&D, which could affect your ability to claim in future or open up new opportunities for you.

SME Tax Credits and Deductions

From April 2023 R&D tax relief rates will be altered as follows:

Given these reductions to this relief, it may make sense to bring forward planned R&D expenditure into the current tax year to take advantage of the current rates of tax relief.

Data sets, cloud computing and pure mathematics

Given the demand for data services, businesses will be able to include the costs of purchasing data for R&D projects or using cloud computing services.

This new addition will mean businesses that, for example, pay licence fees to rent cloud computer storage space or pay for data costs in pursuit of R&D will now be able to build those costs into their claims.

Many businesses will benefit from this change, particularly in technology and media, and could mitigate losses from the restrictions to overseas R&D costs.

These areas will now come under the R&D qualifying expenditure umbrella and R&D for tax purposes will now also include pure mathematics.

Focussing on the UK

R&D reliefs will be focused on the UK from 1 April 2023, subcontracted R&D work and the cost of externally provided workers (EPWs) will be limited to work undertaken in the UK.

The Government has indicated that it does not want to introduce a rule that discriminates against businesses that cannot practically carry out research in the UK, but it doesn’t want to prevent the offshoring of R&D.

A list of exemptions is being worked on which will be tied to environmental, geographical, legal or regulatory reasons. There may also be an exemption for certain specialist skills, such as consulting world-leading experts in a particular field.

Cracking down on abuse

HMRC has voiced concern over certain R&D claims and has allocated an additional 100 inspectors to deliver greater scrutiny.

It has also introduced tougher rules, which include:

On this final point, the ICAEW has raised concerns that in some circumstances it might prevent businesses from making a valid claim.

This is because it shortens the timeframe in which companies need to determine whether they have a valid claim.

For help and advice on R&D claims and related matters, please contact us today.


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