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An eventful 12 months in R&D Tax Claims

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As we approach the new tax year, we reflect on what’s happened in the last 12 months which has been a landmark year for the R&D tax relief scheme. R&D has been a key driver in the Government’s push towards raising levels of investment by businesses, particularly by those within high-growth sectors such as technology.

As HM Revenue & Customs (HMRC) reaffirms its commitment to enforcing compliance, this tax year has also highlighted the increasing complexity of submitting successful claims – and the growing role of R&D specialists as partners to accountancy firms.

As the new tax year arrives this week, we take a look back and discuss its implications for future claims.

Compliance concerns

One of the major shifts within the R&D tax space this financial year has been an emphasis on compliance by HMRC.

Due to the potentially far-reaching nature of R&D as a term, some providers of R&D services have historically submitted claims which are invalid or deliberately manipulative of data such as revenue and R&D expenditure.

This has led to abuse of the system and lost time and tax revenue for HMRC.

There is now a clear move towards compliance by HMRC in how it analyses and approves R&D claims.

This has highlighted the importance of our own practice, built on integrity and thoroughly verified claims, as a support system for accountancy firms without the necessary in-house expertise.

A landmark merger

The headline change to R&D tax relief in the 2023/24 financial year has undoubtedly been the merging of the RDEC and SME relief schemes from 1 April 2024.

After this date, HMRC will apply a ‘best of both worlds’ scheme to all businesses seeking to claim for R&D tax relief.

The RDEC rate of 20 per cent relief will be applied to all claims, with the notional rate applied to loss-makers being set at the small profits rate of 19 per cent, rather than the higher 25 per cent main rate under previous RDEC regulations.

Additionally, the policy of allowing the decision-maker to claim for R&D relief on contracted-out work is likely to result in more R&D coming under the remit of the merged scheme, as well as providing the relief to the party bearing the majority of the risk involved in R&D.

While the ultimate goal is to simplify R&D claims and enhance compliance, the merger is likely to present significant uncertainty for your clients and potentially for your practice, which makes this an essential time to seek additional support with your R&D practice.

SME intensive scheme

You may have clients which are eligible for the other remaining R&D scheme from 1 April 2024 – the SME intensive scheme, which supports the most R&D-intensive SMEs which are making a loss as a result of their R&D investments.

Make sure that clients are aware that the threshold for being considered ‘R&D-intensive’ is falling from 40 per cent of expenditure to 30 per cent, meaning more SMEs will be brought into the scope of the relief.

The most complex aspects of this relief going forward are likely to be:

  • Items of exceptional spending – to stop SMEs from moving in and out of the scope of the relief, HMRC will allow valid claimants from one year to claim again in the next.
  • Defining loss making – HMRC seeks to prevent manipulation of accounts and identify genuine loss-making SMEs by preventing the use of shortened accounting periods.

With substantial experience in the R&D space, we can work with your firm to assist clients in identifying the right relief for them and putting together a claim.

The best way to support clients wanting to submit compliant, successful R&D claims is to stay prepared yourself. To enhance the R&D service offered to your clients, we’re here to partner with your firm and provide the benefit of our expertise.

Contact the randd team today to see how we can help you prepare for upcoming R&D changes.