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Latest HMRC updates regarding R&D Tax Credits

HMRC recently published their drafted legislation regarding new changes for R&D tax credit relief. The government has set the bold target to raise investment in R&D to 2.4% UK GDP by 2027. It is the government’s belief that reducing the cost of research, development and innovation within UK businesses will help them achieve their target. Businesses claiming under any of the two schemes (SME or RDEC) will be impacted by these budget adjustments, which will take effect for accounting periods starting on or after 1 April 2023.

Author: GaryEdwards

Key points
– The estimated total Research and Development (R&D) tax relief support claimed for the tax year 2020/2021 was £6.6 billion This corresponds to £38.1 billion in total R&D expenditure.
– The estimated total number of R&D tax credit claims for the tax year 2020/2021 was 89,300, an increase of 7% from the previous year. The increase is driven by a 7% rise in the number of R&D claims within the SME scheme to 78,825
– Claims by companies with registered offices in London made 21% of total claims and 31% of the total amount claimed and the South East made 15% of total claims and 18% of the total amount claimed. However, the registered office location may not be where all the R&D activity takes place
– Industry sectors with the greatest volume of claims were Information and Communication, Manufacturing, Professional, Scientific and Technical, making up 62% of total claims and 7-% of total amount claimed for tax year 2020/2021

Extended R&D Expenditure
The R&D expenditure categories are set to be extended and will include the cost of datasets and cloud computing. This should improve R&D credits for the sector and is especially pertinent to companies in the Technology, Media and Telecoms sectors where these charges might make up a sizeable portion of their R&D efforts. Additionally, new Health and Social Care Levies will be treated in the same manner as current national insurance contributions for determining the qualifying components for R&D personnel costs (and payable credit caps). Finally, R&D in pure mathematics will now be accepted as qualifying R&D for relief and can be included in the claimant’s R&D activities.

Relief Refocus
One fundamental change to come from the ‘mini-budget’ was a refocusing on the relief available to activities conducted within the UK. As a result, only work carried out in the UK will be covered by subcontracted R&D work and the cost of externally provided workers (EPWs). Work outside the UK is authorised under some specified exceptions, such as those related to geography, the environment, society, or legal or regulatory needs. The HMRC guidance gives examples of deep ocean research and clinical trials; logically, these examples might also apply to medical technology studies in particular patient populations, international telecommunications testing, or equipment made for harsh conditions. Due to workforce availability issues or financial constraints, exemptions won’t be permitted.
It is important to note that, as of now, the draft legislation does not address claims for the cost of staff members working on projects in an overseas branch of a UK corporation. It is hoped that clarification will be provided as the bill passes the parliamentary process.

About Us
Since 2008, randd has developed a strong reputation within the research and development tax credits sector, built upon specialist knowledge and experience in this specific tax area. What truly differentiates randd are highly experienced consultants who have an unrivalled breadth and depth of senior level experience covering wide ranging industry sectors. It is for these reasons that randd were acquired by K3 Capital Group plc in 2020.
Our experienced team take the time to maximise your claim and minimise the effort required from yourselves at every stage of the process. Making a claim really isn’t just a numbers exercise and our 100% success rate is because we know in detail how the scheme works, how HMRC interpret what’s eligible, and the precise way HMRC expect submissions to be presented.

Finding how much you could potentially claim has never been easier, our free online calculator can give you an estimation in minutes. To use our free R&D tax credit calculator click here.