What other recent changes to the UK R&D tax legislation should I be aware of?
There are a number of recent changes to the R&D tax relief legislation. This includes the following:
Restricting Overseas R&D Expenditure
Starting 1 April 2024, expenses related to subcontracted R&D and externally provided workers (EPWs) involved in R&D projects outside the UK will no longer be eligible for UK R&D tax relief. To qualify, these expenses must either be attributed to R&D performed in the UK or meet the criteria for qualifying overseas expenditure.
In addition, payments for EPWs must be subject to PAYE and national insurance contributions to qualify, unless deemed as qualifying overseas expenditure.
Criteria for Qualifying Overseas Expenditure
For R&D expenses outside the UK to be classified as qualifying overseas expenditure, they must meet three criteria:
Necessary conditions for R&D aren’t present in the UK
Conditions exist in the location where R&D is conducted
It would be unreasonable to recreate these conditions in the UK.
These conditions may be geographical, environmental, or social and may include legal or regulatory requirements.
For instance, a UK company conducting clinical trials overseas will not be eligible for R&D tax relief from April 2024, unless legal or regulatory requirements necessitate the trials’ location.
Inclusion of Software and Technology Costs
The new legislation recognizes costs for data licences and cloud computing services as qualifying expenditure, as long as they contribute directly to resolving scientific or technological uncertainty. Furthermore, costs for materials sourced overseas can still qualify if the R&D work is done in the UK.
Enhanced Compliance Measures
To enhance compliance and curb potential misuse of the R&D tax credit system, HM Revenue & Customs (HMRC) is implementing several important changes:
From 8 August 2023, all claims must be digitally submitted along with additional information on a new digital form. This form requires project and expenditure details in a specific format, with a necessary number of projects and proportion of expenditure clearly described for the claim to be valid.
New entrants or companies that have not claimed in the past three years with accounting periods starting on or after 1 April 2023 must notify HMRC of their intention to make a claim. This pre-notification must occur within six months of the end of the relevant period.
Every claim must be endorsed by a named senior officer of the business. In addition, any third-party agents engaged in advising on the claim must also be named.
These changes highlight the importance of understanding the evolving landscape of R&D tax incentives. Companies should familiarise themselves with the new regulations to ensure successful R&D tax credit applications and maximise potential benefits.