Following the changes to the R&D legislation announced at the Spring Statement the draft legislation has now been published. The changes are to take effect for accounting periods beginning on or after 1 April 2023. The main changes are noted below.
UK Only R&D Activities
In an attempt to ensure that the benefits of the R&D incentives remain in the UK subcontractor and externally provided worker (EPW) costs will only be qualifying costs where the activity is undertaken in the UK.
For sub-contractor payments to be allowable the work performed must be undertaken in the UK. For EPWs the staff controller must account for PAYE, National Insurance and the health and social care levy on the payments for them to be allowable.
There are a few exceptions when overseas costs may be allowable. Where the work cannot be undertaken in the UK due to geographical, environmental or social conditions, or due to legal and regulatory requirements, overseas costs may be allowable. The cost or availability of workers are specifically excluded as factors allowing overseas costs to be claimed.
The restrictions apply to both the SME and RDEC schemes. Consumables and software purchased from overseas will continue to be allowable.
Claim Notifications
For claims made under either the SME or RDEC scheme HMRC must be notified in advance of the claim being made. The notification must be made to HMRC no later than six months after the end of the accounting period for which the claim is to be made.
Notifications are not required where a claim, or notification, has been made for any of the three preceding accounting periods.
There are no details, as yet, as to the format of the notification.
In addition when a claim is made without a notification HMRC will have the power to amend the tax return to remove the claim. This amendment cannot be rejected, and a new claim, relating to the same expenditure as the original claim, cannot be made.
Cloud Computing and Data Licences
The qualifying cost categories have been extended to include cloud computing and data licences. This should benefit many companies, particularly those in the tech industry.
Allowable cloud computing costs include ‘ data storage, operating systems, software platforms and hardware facilities.’
Data licences which are capable of being resold, published or shared, or those used in qualifying indirect activities will not be allowable.
Additional Information
The draft legislation includes a requirement for additional information to be submitted together with the R&D claim. However, the information to be provided, and the format of it are to be specified in separate, as yet unpublished, regulations.
It is expected that the qualifying expenditure will need to be broken down into the relevant categories, and that a description of the R&D undertaken will have to be provided.
How PGR Can Help
Our team of technical experts can help you understand how the new legislation will impact your R&D claim. We will work with you to identify R&D qualifying costs under the new legislation.
We provide a detailed technical report with all of our claims, which will include the additional information as required by HMRC.
Contact us on 028 9040 6295 to discuss your R&D claim.