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How will Research and Development tax relief be affected by the upcoming Finance Bill?

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On 20 July 2022 (Legislation Day), the Government revealed draft legislation for the upcoming changes to R&D tax relief.

Many of the changes, which form part of the forthcoming Finance Bill 2022/23, had already been anticipated prior to the announcement, but it is always interesting to see what the detail looks like. One area that was awaited with interest was the proposal that companies notify their intention to make R&D claims in advance.

From 1 April 2023, companies will need to digitally pre-notify HMRC of any planned R&D claims, and within six months of the end of the period to which the claim relates.

Fortunately, businesses that have claimed in one of the preceding three accounting periods will not need to pre-notify. This key exemption to the pre-notification ruling is welcome news for all companies that have claimed R&D tax relief in a recent accounting period but, for those who haven’t, it could prove to be a headache.

Also from April 2023, tax reliefs will be refocused towards innovation undertaken in the UK, meaning that expenditure on subcontracted R&D and externally provided workers (EPWs) must be incurred within the UK, while additional relief will be denied for any R&D activity performed overseas.

Other key changes highlighted on Legislation Day include the expansion of qualifying expenditure to incorporate costs for data and cloud computing associated with R&D, and that all Corporation Tax returns that contain an R&D claim will need to be submitted to HMRC by way of a digital service.

Making a claim

Under the existing rules, a company can make a claim for the previous two accounting periods because they have a statutory right to amend a tax return up to 12 months after the filing deadline.

But the new rules state that, if the business hasn’t made a claim in any of the preceding three accounting periods, it wouldn’t be able to submit a claim for the two previous periods that would normally be open (under the current rules), since notification must take place within six months of the end of the accounting period in question. This is the case even though the statutory deadline for filing or amending these returns is yet to pass. Therefore, retrospective claims may not be possible without being proactive.

If you’re thinking of making an R&D claim for a previous accounting period, you must do so before 1 April next year. If you need some further guidance on this, our experienced tax advisors are on hand to help. We’d encourage you to get in touch with your usual BHP contact as soon as possible, or give us a call on 0333 123 7171.

Find out more about how our dedicated R&D team can support you.