The R&D scheme for businesses staking claims under the Small and Medium Enterprise (SME) scheme or the Research and Development Expenditure Credit (RDEC) scheme has recently undergone some transformative changes.
These shifts have a significant impact on tax relief and repayments, casting a new light on financial strategies for organisations big and small.
The Criteria, Key Changes and Their Impact
For an SME scheme, the qualifying criteria remain the same – a company or a group employing less than 500 workers, boasting an annual turnover of under €100 million, or having a balance sheet under €86 million.
The revisions introduced present a two-sided coin. On one side, SME claimants will face a considerable drop in repayable tax credit, while profitable SME claimants will witness a reduction in corporation tax.
On the flip side, RDEC claimants will experience a net funding increase.
While the changes might seem to favour larger enterprises, the silver lining is that SME claimants with subcontracted R&D projects or those receiving grant funding can also benefit.
A Look at the Caps
Both the SME and RDEC schemes set a limit to the repayable credit that a company can receive.
The cap for an SME is £20,000 plus 300% of its total Pay as you Earn (PAYE) and National Insurance Contributions (NIC) liability for the period.
Understanding R&D Expenditure Categories
The alterations to the R&D scheme extend the expenditure categories to incorporate costs of datasets and cloud computing.
This extension is notably significant for those operating in the Technology, Media, and Telecom sectors where such costs can be substantial.
Changes Around R&D Activities and Relief Criteria
From 1 April 2023, to claim R&D tax relief, the associated costs must be tied to activities physically based in the UK.
This amendment may pose challenges for UK companies with overseas branches.
A Crusade Against Fraudulent Claims
To curb system abuse, HMRC has introduced new measures, including a digital claims submission mandate and detailed cost breakdown requirements.
Plus, claims will need a named senior officer’s endorsement, and new claimants will have a limited six-month window for claim identification.
The Implications of the Changes
Given the evolving landscape, it’s critical for businesses to seek professional advice before lodging a claim under the R&D scheme.
Stricter regulations will lead to more thorough reviews and will necessitate companies to be prompt and precise in identifying and substantiating their claims.
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