Understanding the New R&D Tax Credit Rules for 2024
Written by Sach
As of 1 April 2024, significant changes have been implemented in the UK’s Research and Development (R&D) tax credits system. These reforms are crucial for small and medium-sized enterprises (SMEs) aiming to claim R&D tax credits. Here’s a detailed breakdown of the key changes, additional compliance requirements, updated tax credit percentages, eligibility criteria changes, and what can and cannot be claimed.
Key Changes to R&D Tax Credits:
Merger of Schemes
- The SME scheme and the Research and Development Expenditure Credit (RDEC) scheme have been merged. This unified scheme simplifies the application process and provides consistent support across businesses.
Increased Support for R&D-Intensive SMEs
- SMEs spending 40% or more of their total expenditure on qualifying R&D activities are now eligible for higher relief rates.
Restrictions on Nominations and Assignments
- Payments for R&D tax credits are now made directly to the claimant companies, and the ability to assign credits has been restricted to enhance compliance and reduce fraud.
Documentation and Reporting
- SMEs must maintain detailed records of their R&D activities, including project descriptions, expenditure breakdowns, and evidence of scientific or technological advancements.
- Use the new digital portal for submitting R&D tax credit claims.
Training may be required to ensure staff can use this system effectively.
Advance Assurance
- SMEs can apply for advance assurance to get an indication from HMRC that their projects qualify for R&D tax relief. This assurance can be beneficial for startups and first-time claimants.
Providing notice
- You must provide noticification, if you are claiming for the first time or your last claim was more than 3 years before the last date of the claim notification date.
Updated Tax Credit Percentage
- For loss-making SMEs, the surrenderable loss rate is now 10%. It is14.5% surrenderable loss if the company meets the intensity condition.
Eligible Projects
- R&D projects must seek to achieve an advance in science or technology by resolving scientific or technological uncertainties.
- The project must not be easily deductible by a competent professional in the field.
Qualifying Expenditure
Included: Staff costs (salaries, NICs, pension contributions), materials consumed or transformed in R&D, software used in R&D, and utilities (power, water, fuel).
Excluded: Production and distribution of goods and services, capital expenditure, and costs unrelated to the R&D activities (e.g., sales, marketing).
Non Qualifying Expenditure
Production Costs: Costs related to production and distribution of goods and services.
Capital Expenditure: Investment in land, buildings, and other capital assets.
Indirect Costs: Overhead costs such as rent, rates, and utilities that are not directly related to the R&D project.
Marketing and Sales: Costs associated with sales, marketing, and commercial
activities.
Conclusion
- The reforms effective from 1 April 2024 aim to streamline and enhance the R&D tax credit process while ensuring greater compliance and reducing fraud. For SMEs, understanding these changes is crucial to successfully navigating the R&D tax credit landscape.
- Outsourcing your R&D tax credit claims to experts like Pennyhills can simplify this process. With in-depth knowledge of the new regulations and a commitment to maximizing your benefits, Pennyhills ensures your business remains compliant and reaps the full advantages of available reliefs.
Need Help?
- Contact Pennyhills® today to schedule a consultation with one of our experienced R&D advisors.
We can help you navigate these changes and take proactive steps, ensuring compliance whilst maximising your claim.
Visit www.pennyhills.com/contact-us to reach out to us and discover how we can partner with you on your journey. You deserves the expertise and dedication that Pennyhills® brings to the table. Let’s embark on this journey together.
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