MHA | R&D – The new regime comes into effect

R&D – The new regime comes into effect

Lee Pimlett · Posted on: May 17th 2023 · read

Professional man in thought

The new R&D regime came into effect on 1 April 2023 for companies with accounting years commencing post 31 March 2023.

What does the new R&D regime do?

The new regime has reduced the future value of SME R&D claims considerably, in some cases by nearly 45% for loss-making companies. However, as tax relief/tax credit is still arguably the most valuable Corporation Tax relief available to qualifying companies, it will continue to be a useful scheme.

Alongside this reduction in tax relief/tax, credit value has come an increase in the administration of the R&D scheme.

This additional administration may be a tool to sift out smaller R&D firms by requiring a more hands-on approach from R&D advisors, due to the requirement to pre-notify HM Revenue & Customs (HMRC) of any possible claim a company may make.

With the pre-notification being just 6 months following the accounting year end, companies will need to act quickly in deciding if they wish to make an R&D Tax Relief claim, as any delay may result in the loss of significant tax relief.

Have there been even further changes to R&D?

Launched in tandem with the new R&D regime, has been the introduction of a team of operational R&D officers.

Over 200 officers have been recruited by HMRC to review R&D Tax Relief claims. This is welcome news, as the R&D sector has been miserably managed up to this point, with little guidance and not even a prescribed process in place to make a claim.

Unfortunately, up to this point, the R&D officers appear to have limited real-life experience in dealing with enquiries/reviews and appear to be relying upon a generic series of responses when replying to clients’ information. Hopefully, via more experience and further training, these officers will prove a constructive addition to the process and not a hindrance to limiting future qualifying claims.

Has HMRC updated R&D guidance?

As part of the new R&D regime rollout, there have been attempts by HMRC to update the R&D guidance.

A number of these updates contradict their own operations manual, an example of this relates to the R&D update released on 14 April 2023 which states bonus payments are not qualifying expenditure, even though the Corporate Intangibles Research and Development Manual specifically states `bonuses` as an example of an allowable one-off payment for R&D purposes, again maybe further training and/or experience will iron out these errors by HMRC?

Hopefully, once the new R&D regime is up and running and the new HMRC R&D officers are trained, these changes will prove to be a positive future for the R&D scheme; we will see.