R&D Claims - 6 things you need to know
1 – Pre-Notification Form
HMRC added an administrative step to try and encourage more companies to have R&D Tax Relief in active thought, not a deadline task.
You will be required to make a Pre-Notification if you have not submitted an R&D Tax Claim for the previous three accounting periods, for any claims made for accounting periods starting on or after 1st April 2023.
If you need to make a submission, you have from day one of the period up until six months after the end of the period to do it. For example, for a 31st March 2025 year end, the form can be submitted from 1st April 2024 to 30th September 2025.
You may not need to if you have made previous claims, but it is worth checking to prevent HMRC using an administrative point to reject a claim.
2 – Merged Scheme
This is the new main R&D Tax Relief scheme that the vast majority of companies will claim from. It has similar characteristics to the previous “RDEC” Scheme, also referred to as the large company scheme.
Unlike before, if you are in receipt of any grants, they will not prevent you from claiming R&D Tax Relief.
The benefit is a Taxable Credit of 20% of qualifying costs.
For example, if you spent £150,000 on qualifying costs, you could receive a benefit of £24,300. This benefit could come in the form of an offset against Tax Liabilities or Cash Payout. This assumes you pay the Small Profits Rates.
3 – Enhanced R&D Intensive Support (“ERIS”)
This is a separate scheme for Loss Making SMEs that is similar to the previous SME scheme. If an SME’s qualifying costs for R&D is at least 30% of their total expenditure for the period (with a few adjustments), then they qualify for a greater benefit.
Just liked the Merged Scheme, grants will not impact your ability to claim this scheme.
The benefit here is the ability to get a Tax Credit which can be paid out as cash from HMRC.
After an enhanced deduction of 86% of the qualifying costs, losses can then be converted to a Tax Credit at a rate of 14.5%.
For example, if you spent £150,000 on qualifying costs, you could receive a cash payout of £40,455.
4 – Overseas Expenditure
Overseas Subcontractors or Agency Staff (Externally ProvidedWorkers) will no longer be available unless specific criteria are met.
These criteria can be summarised as if you could do it in the UK, you should. Though, of course, reality is that it is more complex than that. You must consider aspects like if it is wholly unreasonable to try and undertake the R&D in the UK.
Interestingly, the judge of what is wholly unreasonable or reasonable will be left to the Company as it will vary depending on the capability of each individual entity.
Some commercial factors, such as costs, will not be accepted as a qualifying reason.
The Overseas aspect is not necessarily isolated to who is being paid, it looks at where the activity is taking place. Therefore, if you pay an overseas Agency for staff who are employed by a UK subsidiary and operate in the UK, then that cost is allowable despite being paid to an overseas entity.
5 – Increased Guidance on Subcontracted R&D
May not sound exciting but in truth having clearer guidance on any aspect of R&D is fantastic. Previously there was ambiguity regarding who could claim R&D in a Client and Subcontractor chain, given one paid for the work and the other undertook the work.
Now HMRC say whoever made the conscious decision and had the ability to appreciate the R&D to be undertaken can make the claim.
6 – We are here for you!
We at Barnes & Scott are here to help you in many ways including R&D. From discussing whether a project could qualify, what supporting documentation to gather, to the full preparation and submission of an R&D Tax Claim.
If you wish to have a call regarding R&D, please set up a meeting with our R&D Tax Manager Steph.