Navigating the Evolving Landscape of R&D Tax Relief
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Navigating the Evolving Landscape of R&D Tax Relief: with our R&D expert Jay Bhatti, Associate Director of R&D at Haines Watts.
In the ever-changing world of Research and Development (R&D) tax relief, staying updated with the latest changes is crucial for businesses aiming to safely maximise their benefits and ensure thorough compliance with legislation.
Updated Rates for SMEs and RDEC
Since April 2023, the revised rates for Small and Medium-sized Enterprises (SMEs) and the Research and Development Expenditure Credit (RDEC) have been fully in effect. SMEs now experience reduced rates, dropping from 130% to 86%, with cash credits decreasing from 14.5% to 10%. On the other hand, the RDEC credit has risen from 13% to 20%. This change necessitates that businesses adjust their forecasts and ensure their calculations reflect the new rates. For expert assistance in navigating these changes, contact our team at Haines Watts.
Additionally, SMEs can access an enhanced credit of 14.5% by proving intensive R&D expenditure, where qualifying R&D costs exceed 40% of total expenditure, decreasing to 30% for accounting periods which started after 1 April 2024.
Cloud Computing and Data Expenses
Costs associated with cloud computing and data are now eligible for R&D tax relief, providing businesses with another opportunity to maximise their claims.
Understanding the Additional Information Form (AIF)
The introduction of the Additional Information Form (AIF) for claim submissions marks another important change. Despite being in place for several months, some businesses may still be unaware of its impact. It is essential for all eligible entities to comprehend the AIF requirements and update their processes to prevent issues and delays in claim submissions.
Notification Deadlines for New Claimants
For accounting periods starting after 1 April 2023, new claimants were required to meet a strict notification deadline. Failing to submit the claim notification form within six months of the year-end resulting in the loss of any R&D claim. This also applies to companies whose last claim was made more than three years before the last date of the claim notification period. For instance, if the accounting period ran from 1 January 2024, to 31 December 2024, new claimants or those who have not made a claim since 30 June 2022, must submit the claim notification form between 1 January 2024, and 30 June 2025.
Restrictions on International Subcontracting
Changes in subcontracting rules now require that for accounting periods starting after 1 April 2024, all subcontractors and ‘Externally Provided Workers’ must be based in the UK. Exceptions are allowed only under specific conditions, highlighting the need for careful examination of subcontracting arrangements. These conditions may include regulatory or environmental reasons, but not financial ones. Companies should maintain records and evidence, such as contracts, where they believe they qualify for an exemption.
Unified Scheme
For accounting periods beginning after 1 April 2024, the previous SME and RDEC schemes will combine into a new RDEC-style scheme, called the Merged Scheme. This change has additional implications for subcontracting and subsidised expenditure.
Importance of Communication and Consultation
With these evolving regulations, effective communication and consultation with R&D tax specialists are crucial. Businesses are encouraged to seek clarification on any uncertainties and engage in proactive discussions to optimise their R&D strategies.
Conclusion
In summary, to navigate these R&D changes, proactive engagement and timely notification are essential.
Businesses must work with experts to navigate complexities and take advantage of available opportunities. The landscape of R&D incentives is continually evolving, underscoring the importance of adaptability and informed decision-making for sustainable growth.
Given the complexity and constant evolution of R&D tax relief regulations, it is essential to engage an R&D specialist who is well-versed in the changing claim environment. Partnering with experts ensures that your business can navigate these changes smoothly, maximise available benefits, and stay compliant with all requirements.
