Research and development plays a massive part in what small and medium businesses focus on as they accelerate growth. R&D takes place in every sector from construction to software development and you can claim R&D tax reliefs from the government, even if your innovation is unsuccessful. R&D tax reliefs can be claimed for any innovation including creating new products and services or modifying existing ones. R&D tax reliefs are claimed as a Corporation Tax deduction or as a payable credit on R&D costs.
In the 2022 Autumn Statement delivered by Jeremy Hunt, some changes to Research & Development (R&D) tax reliefs were announced and will come into effect on April 1st 2023. Currently, however, there are 2 types of R&D relief:
- SME R&D Relief – This is for businesses with less than 500 employees and allows you to deduct 130% of your qualifying costs from your yearly profit. You can also claim a tax credit worth up to 14.5% if you’re loss-making, which is claimed on your surrenderable losses.
- Research & Development Expenditure Credit (RDEC) – This is for some SMEs and large companies who are subcontracted to do R&D work by other large companies. This is a tax credit worth 13% of your qualifying R&D costs.
Changes from April 1st 2023
SME R&D Relief will reduce the deduction rate from 130% to 86% of your qualifying costs and the rate of the SME payable credit rate which can be claimed for surrenderable losses will be decreased from 14.5% to 10%.
For the RDEC, the 13% tax credit will increase to 20%.
The plan is to also expand qualifying expenditure to include data and cloud costs, which, as ACCA tell us, is the government trying to refocus support towards UK innovation. The government announced this in November 2022, saying that “pure mathematics research” which includes “data and cloud computing” would now be considered qualifying costs.
There are more changes coming too (to counter fraud), the most important being that companies need to let HMRC know in advance if they intend to make a claim – first-time R&D claimants (or have not made a claim in the previous three years) will need to fill in a Claim Notification form within six months from the end of the accounting period for which the claim is to be made.
How to get this money back
The most efficient way to claim your R&D tax reliefs is to contact your accountant and ask them for some advice. They’ve probably been through this process before and may have even helped submit the necessary forms. We have a specialist partner, Catax, who help our accountants and their clients with their claims.
There are plenty of companies out there who can do this for you, but they will often charge you a percentage of the money you get back from the government. This is why it’s important to speak to your accountant first. You can find your nearest AIMS Accountant here.
And remember, there is no such thing as being too small to claim R&D tax relief.