Report sheds more light on changes to R&D regime

More details have emerged on upcoming changes to the UK’s research and development (R&D) regime, which will take effect from April 2023. 

The Treasury published a report on R&D following last year’s Autumn Budget, in which Chancellor Rishi Sunak announced several new measures.

“If we want greater private-sector innovation, we need to make our R&D tax reliefs fit for purpose,” said the Chancellor during his speech in October 2021.

The report centred on the R&D expenditure credit (RDEC) and the small and medium-sized enterprises (SME) R&D relief.

These schemes provide an injection of cash or a corporation tax reduction when evidence of qualifying R&D is submitted to, and approved by, HMRC.

The RDEC enables eligible companies to reclaim up to 11p, after the deduction of corporation tax, for every £1 spent on their qualifying R&D.

The R&D tax credit scheme for SMEs offers a benefit of up to 33% – the equivalent of up to 33p for every £1 spent on qualifying R&D.

Until 31 March 2023, there is no requirement that R&D activity must be undertaken in the UK for companies to be eligible for these R&D tax reliefs. 

But from 1 April 2023, new restrictions will bid to ensure that reliefs focus on domestic R&D activity and incentivise greater investment in the UK.

The report also detailed how the scope of R&D will extend to include cloud computing and data costs to reflect how companies conduct research. 

Measures to combat fraud and abuse will require R&D claims to be made digitally, and to notify HMRC before submitting a claim for relief. 

The report stated:

“In considering other reforms, the Government’s objectives remain to ensure the UK remains a competitive location for cutting-edge research, that the reliefs continue to be fit for purpose, and that taxpayers’ money is effectively targeted.”

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