Changes are being made for companies that carry out Research & Development (R&D) and claim R&D tax relief under either of two schemes – the Research and Development Expenditure Credit (RDEC) and the small or medium enterprises (SME) R&D relief, and some companies which have made a Patent Box election.
Background
The two schemes offer generous support to incentivise firms investing in R&D. At Budget 2021 the government announced a review of the reliefs, supported by a consultation with stakeholders. This consultation explored the nature of private-sector R&D investment in the UK, how that is supported or otherwise influenced by the R&D relief schemes, and where changes may be appropriate.
The government has published draft legislation for stakeholder input for these measures, to come into effect from April 2023 with necessary legislation in the Spring Finance Bill 2023. Some of the changes will be delivered through supporting Statutory Instruments to be introduced by August 2023.
Proposal
The additional information requirement will have effect for claims made on or after 1 August 2023.
All other measures will have effect for Accounting Periods beginning on or after 1 April 2023.
- Secondary legislation will be introduced with effect from August 2023 to require that all CT returns that contain an R&D claim, including amended returns, must be submitted digitally through HMRC’s tax return portal.
- a new condition at section 83EA which specifies that the latest date for providing an additional information form is not later that the date on which the claim is made or amended by the company. New condition 83EA also provides HMRC with the power to make regulations setting out additional information to be provided in relation to a claim.
- A new condition at section 83EB which removes the ability for customers to reject correction notices in the limited circumstances where they have failed to pre-notify their claim or provide the additional information form. In those circumstances if the customer believes there to be an error in the correction notice the condition introduces a right to send written representations to HMRC within 90 days. HMRC will review the representations and either confirm, amend or withdraw the notice.
- Secondary legislation will be introduced with effect from August 2023 setting out the additional information to be provided in relation to an R&D claim. This information will include a description of the R&D undertaken, breakdown of qualifying costs, detail of any agent who has advised on the R&D claim and space for sign off from a senior officer of the company.
- New sections 104AA, 1045A and 1054A introduce the requirement to make a claim notification in order to make an R&D claim. The exception to this requirement is where a customer has made an R&D claim during the period of three years ending with the day before the first day of the claim notification period. The claim notification period starts on the first day of the period of account that contains the claim.
- After section 1142 (“qualifying body”) new section “1142A “Claim notification” will be inserted providing HMRC with the power to make regulations setting out the form of the claim notification. New section 1142B defines an R&D claim by reference to existing sections 104A, 1011 and 1054.
- Secondary legislation will be introduced with effect from August 2023 setting out the information to be provided with the notification, and the form and manner in which the notification is to be made.
Measures to address anomalies and unforeseen consequences
- Paragraph 83E of Schedule 18 to Finance Act 1998 will be amended to permit a claim for RDEC to be made where the claimant made a claim for SME relief under Part 13 of CTA 2009 but was not entitled to do so.
- New legislation (ss104Y(4) and 1139A(1)) will clarify that references to expenditure incurred on payments refer to payments that are made before a claim is made in respect of that expenditure.
- Paragraph 83E(1) of Schedule 18 to Finance Act 1998 (Time limit for claims) will be amended to define the time limit for making a claim.
- New legislation (section 1120A of CTA 2009) will clarify that where an enterprise was treated as an SME and a linked enterprise becomes large the first enterprise will continue to be treated as an SME for that accounting period and the following accounting period.
- New legislation (section 1120B of CTA09) will clarify that when an enterprise, which was treated as large only because a linked or partner enterprise was large, is acquired by an SME it will be treated as an SME in the accounting period in which the acquisition is made.
- The definition of “going concern” (ss 104T, 1046 and 1057 CTA 2009) will be amended to clarify that if a company’s accounts are not prepared on a going concern basis only because the company’s trade was transferred to another member of the group the accounts are to be treated as if prepared on a going concern basis.
Impact on businesses
This measure is expected to have significant impact on the administrative burden of approximately 90,000 businesses claiming R&D tax reliefs. One-off costs would include familiarisation with the changes and updating systems to reflect them. Continuing costs could include a requirement to provide additional information to HMRC in the company tax return.
