The United Kingdom's HM Revenue and Customs (HMRC) has released this week the specifics of new tax law that is scheduled to become effective in April 2023. The Research and Development Tax Refund adjustments policy paper is currently accessible in its entirety for perusal on the website of the UK Government.
The proposed law, which had been previously announced in the 2021 Budget, aims to expand eligible expenditures, refocus reliefs towards UK innovation, and counteract exploitation of the system. These objectives were originally declared in the 2021 Budget.
The following is an outline of the most important information regarding the newly implemented policies.
Converting R&D tax breaks into digital form while also combating exploitation of the system
According to the new legislation, claims have to be submitted digitally and must include a breakdown of costs across qualifying categories, a brief description of the R&D, an endorsement bay high-ranking executive, as well as information about any agent who provided assistance to the firm in assembling the claim. Additionally, the claim must include an endorsement by a senior officer.
Companies that have not submitted a claim in any of the preceding three years are required to give HMRC a digital notice of their intention to do so within the first six months following the conclusion of the accounting period. The two-year window in which to submit a claim afterward is still in effect; however, this pre-notification needs to be in place before a business runs the risk of missing out on the opportunity.
Alterations to the R&D that is eligible
The scope of qualifying R&D expenditure is being expanded to include expenditures on datasets and cloud computing, both of which are essential to the way that modern innovative companies conduct research and development. This is being done in order to support modern methods of research and development.
In addition, the concept of "research and development" is currently being revised to include "pure mathematics." In the areas where the R&D definitions of qualifying expenditure are used by the Patent Box system, the rules for the Patent Box will also be altered.
Subcontractors and labour provided from outside the company
R&D tax relief for subcontracted work and workers provided from the outside will only be available for use in the United Kingdom. This is unless there are specific factors that are required but not available in the United Kingdom. These factors could be environmental, geographical, population-based, or anything else. There will also be exceptions for regulatory restrictions that dictate that it must be taken outside of the country (e.g. clinical trials)
Tax on health care and social services
The new Health and Social Care levy, which will be applied to payroll in a manner comparable to that of National Insurance (NI), will be able to be included as relevant staffing costs in the same manner as NI will be able to do so.
SME and RDEC schemes
According to the new regulations, if a company has previously claimed SME relief but was not qualified to do so, the company will be able to make an RDEC claim instead, even if the normal two-year rule for amending claims has passed. This applies even if the company has already exceeded the time limit for making the amendment.
If a company that is part of a larger corporate group outgrows the Small and Medium-Sized Enterprise (SME) plan, that company can now keep its SME status for another year, even if the rest of the group will instantly lose it. A modification to this policy will result in a grace period of one year being extended to the entire organisation.
If a company stops being a going concern for no other reason than it has transferred its trade to another Group member, the firm will still have the right to make a claim even in this circumstance.
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