With major changes on the horizon, 2023 marks a pivotal moment for the UK’s R&D tax relief scheme. Here’s our take on the year that was and what we expect in 2023.
Hari Sandhu, CEO
What happened in 2022
In 2022, HMRC published figures showing a high percentage rise in fraudulent claims. We also saw more coverage in the press about unscrupulous advisors taking advantage of taxpayers’ money and misleading businesses into thinking they qualify. It was heartening to see a range of compliance measures introduced.
Predictions for 2023
Thanks to reforms implemented by the government, especially the R&D rate changes and compliance measures, I expect to see greater market consolidation amongst R&D tax credit specialists.
Unscrupulous advisors who have taken advantage of the scheme in recent years will soon be a thing of the past. With changing rates, SMEs are no longer willing to pay hefty fees; and additional compliance measures should deter the cowboys from staying in this industry.
What happened in 2022
The R&D tax credit scheme is undergoing significant changes this year, including the expansion of additional qualifying costs and the introduction of new compliance measures. Undoubtedly, one of the most noticeable alterations is to the R&D rates – SME benefits will be reduced while RDEC becomes more generous. This change will impact every business that claims, significantly changing the amount they anticipate receiving in their upcoming claim. Businesses don’t have much time to prepare for these changes, with almost all of the reforms coming into play from April 2023, and some will likely be caught out.Predictions for 2023
HMRC has indicated that the R&D rate changes were “a step towards a simplified, single RDEC-like scheme for all”, and this was confirmed in the recent R&D Communication Forum, with further details to be announced in the Spring Budget. I expect HMRC to make significant steps towards the unified scheme in 2023 and will be interested to see whether there are special measures to help companies claiming under the SME scheme who will be impacted by the upcoming rate changes.
What happened in 2022
In 2022, we saw increased uptake of advance funding. This notable shift happened mainly due to HMRC’s payment delay but was also influenced by an increasing number of companies beginning to factor in the value of R&D claims as part of their financial planning.Predictions for 2023
Moving into 2023, I believe that more businesses will embrace in-year claiming and show even more interest in advance funding. Companies that have completed multiple R&D tax claims have matured their processes and are beginning to see the benefit of working on a claim throughout the year. Updating the claim periodically while information is fresh ensures it’s as robust and optimised as possible, giving it the best chance to stand up to increased scrutiny. It also facilitates more efficient due diligence for advance funding, which I anticipate more companies will take up; however they claim. In the difficult economic climate, many businesses will find the advance an important lifeline. It’s also worth highlight, with the SME rate decreasing, making it less generous, there has been speculation that R&D intensive companies may be given a greater reward. At present, there is little clarity surrounding this matter, but I anticipate that further information on this subject might arise by early 2023.
What happened in 2022
In 2022, we saw many more tech-enabled R&D tax relief advisors try to establish themselves in the market, which is undoubtedly a move in the right direction. With HMRC focusing on compliance and scrutinising claims more, R&D platforms with digital audit trails offer a distinct advantage for companies making claims and needing to defend enquiries.Predictions for 2023
In 2023, I think the R&D advisor industry will increasingly turn to technology. With the new compliance regulations in place and HMRC’s heightened monitoring, it is vital to provide precise documentation as supporting evidence. Increasingly we are seeing supporting evidence clearly defined in companies’ systems, and the use of technology enables us to analyse and summarise qualifying activity. Leveraging tech-enabled platforms for collaboration and auditing will help companies through these tricky changes and ensure the accuracy of a claim It’s also worth noting that calculating the upcoming combined rate changes without tech assistance will be time-consuming and open to error.
What happened in 2022
In 2022, we saw the government continue to invest in innovation, with Chancellor Jeremy Hunt openly declaring his intention to protect the R&D budget and a desire to increase the R&D budget to £20bn by 2024/25. We also saw the R&D tax relief scheme move with the times. Adding cloud computing, data and pure maths as qualifying R&D expenditures from April 2023 will greatly benefit many of our clients moving forward.Predictions for 2023
In 2023 I anticipate that the reforms announced in 2022 will become more concrete. Even with the release of the draft guidance, we are still lacking detailed supporting documentation, especially regarding overseas costs and the new rate changes. I expect clients to respond positively to being able to claim for new qualifying costs (cloud computing, data analysis and pure mathematics). I anticipate that our clients claiming under the SME scheme will be hopeful that these new costs will help to mitigate the impact of the lower SME rate.Seeking a trusted partner to help you build your R&D tax claim?
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