As a start-up, it's crucial to stay abreast of changes that could impact your business. One such change is the alteration to R&D tax relief coming in August 2023. These changes, particularly relevant for businesses in the Seed to Series A funding stage, could significantly affect your company's financial landscape. From the Chancellor's Spring Budget to the implementation of new qualifying costs for data licences, cloud computing, and pure mathematics, a number of changes are happening.
Understanding the changes
The upcoming changes to R&D tax relief are multifaceted and carry substantial implications. One of the most notable alterations is the introduction of an additional information form. From 8 August 2023, all Corporation Tax returns containing an R&D claim, including amended returns, will need to be accompanied by a new form, filed via an online HMRC portal.
This form will require the following information:
- Your company’s Unique Taxpayer Reference (UTR), PAYE reference, and VAT number.
- Your SIC code (this can be viewed on Companies House).
- Contact details of a senior contact in the company (e.g. founder, CEO, product technical lead) responsible for the claim.
- Contact details of your R&D agent (if applicable).
- Accounting period start and end dates.
- Which relief is being claimed (SME, RDEC or both).
- Breakdown of qualifying expenditure by cost category, with any amounts attributable to Qualifying Indirect Activities (QIAs) separately disclosed.
- Total qualifying expenditure being claimed for each project.
The form also asks for details of your R&D projects. The number of projects you describe depends on how many projects you are including in your R&D claim. For instance, if the claim includes 1-3 projects, details should be provided for all projects. If the claim includes 4-10 projects, details should be provided for projects giving at least 50% coverage of qualifying expenditure, with a minimum of 3.
Another important change for new start-ups is making a first-time R&D claim. You must now notify HMRC that you intend to make a claim, which should be done within 6 months of your period end. This comes into effect for accounting periods beginning on or after 1 April 2023. So, if your start-up has a 31 March 2024 year end and you’re making your first claim, you must notify HMRC by 30 September 2024.
Why the changes?
These changes are coming about due to an increase in claim rejections, particularly from non-specialist providers. HMRC is clamping down on inaccuracies and non-compliance, making it more important than ever to make sure your claims are accurate and well-supported.
Impact on start-ups
For start-ups, these changes present both challenges and opportunities. On the one hand, the additional administrative burden could be seen as a hurdle. On the other hand, this shift provides an opportunity to review and potentially improve your internal approach to R&D claims. The key is to understand these changes thoroughly and adapt your strategies accordingly.
Preparing for the changes
Preparation is paramount to navigate these changes effectively. Start by familiarising yourself with the new requirements and understanding how they apply to your business. Real-time record keeping and a detailed plan for submission are essential to ensure compliance. If you're supported by us, these changes will be handled by default. However, if you're working with another advisor, it's crucial to make sure these changes are being considered. Remember, a lack of preparation could lead to your R&D claim being rejected by HMRC, resulting in additional delays.
The upcoming changes to R&D tax relief are significant, and it's crucial for start-ups to stay informed and prepared. By understanding these changes and preparing adequately, you can make sure your business continues to thrive in the evolving financial landscape. If you need support navigating these changes, don't hesitate to get in touch with your CFO or reach out directly.