Author: Maria Kitt

With a government committed to cutting red tape, the ‘old’ system for claiming UKRDTRI ( UK R & D tax reliefs and incentives) effective from 01 April 2024 may seem analogous. However, this is undoubtedly a huge leap forward in simplifying this key non-structural tax relief aimed at assisting STEM companies. Just to recap, for accounts beginning on or after 01 April 2024 (ie by 01 April 2025) we have:
A simplified ‘main’ relief scheme based on a credit for eligible development and exploration costs worth between 16 and 19% depending on company size and profit level.
A new ERIS scheme, protecting smaller companies from any detriment within the ‘new’ regime.
Transitional rules and rates whilst the ‘old’ schemes expire for accounting periods up to 31 March 2024.
Various regulatory changes to the administration of the schemes.
Abolition of non territorial basis for UK RD expenditure.
Digitalisation of the claim ‘start’ (but not middle and end stages) process enabling faster and more compliant processing in the long run.

Comment

I now have 4 manuscripts in print on the subject of the UK’s tax incentives for innovative companies. This reform was well overdue, with a stasis for large company claims and huge rise in SME claims (even for vegan cocktails?!? according to the rumour mill), change and fundamental change is most welcome.

A Wishlist

Other jurisdictions follow a ‘certification’ process for demonstrating the sci/tech ‘advance’ and do not have the complex ‘Tax Definition’. The outcome of continued consultation in this area would benefit from an independent technology board, but where to begin?
Measurement: Despite relief figures reaching some £3bn p.a. I still feel some unease with no ‘follow through’ by HMRC statisticians as to the outcome of projects receiving subsidies and their impact on recruitment of specialised personnel or within international markets.
The great thing about tax is reform is almost well perpetual, no matter how innovative. Remember to check out our live streams here,

HMRC’s new RD relief disclosure facility is a welcome start to the New Year. This enables companies that believe their RD claim may have been wrong or overstated to correct the Self Assessment where normal time limits have expired. Please note this works in a ‘one – way’ method to repay over claimed reliefs and a claim to increased reliefs falls within ‘normal’ time limits. ‘Normal’ time limits are usually a year after the end of the accounting period, subject to any ‘Advance Notifications’ having also been made on time.

Please contact us for any advice or support required.

Further information can be viewed here

https://www.icaew.com/insights/tax-news/2025/jan-2025/disclosing-errors-in-claims-for-research-and-development-tax-relief

Road to nowhere? In Ms Reeves’ first Budget Speech, we unveil the new Corporation Tax Roadmap, looking ahead to a ‘stable’ corporate tax regime provides us with greater confidence. However, the devil is always in the detail and we take a closer look at the medium term for innovative companies here, writes MARIA KITT Director, Tax Insight UK……

https://assets.publishing.service.gov.uk/media/6721199c4da1c0d41942a8bd/Corporate_Tax_Roadmap.pdf

In Brief:

• Mainstream CT Rate     Held at 25%; SPR / Marginal relief – retained at same rates.
• R & D TR                         Commitment to current universal scheme and long term incentivisation
• Patent Box [UK]             Continuation of current regime
• International CT             Retention of Pillar 1 & 2 cross – border recognition
• Capital Allowances       Commitment to continued support for capex

An essentially ‘neutral’ approach to corporation tax which is very welcome news!

New information requirements for the electronic filing of RD relief incentives were formalised in the publication of SI / 2024 / 950  on 11 September. These consolidate the initial ‘Additional Information’ requirements first outlined in Finance Bill 2023 (Autumn)^[1] providing HMRC with protection from erroneous or fraudulent claims. The Regulations cover claims within:

• The ’old’ RDTR SME schemes;
• The ‘old’ RDEC scheme;
• The ‘universal’ RDTR scheme; and
• The ‘new’ SME Intensive scheme.

In brief as we know, relief incentive claims must comply with the digital ‘AIF’ specification detailing contact and agent details; the company particulars;  its RD operations and the calculation of eligible costs & relevant scheme(s) concerned for the accounting period.
The new regulations also provide for

• Demonstration / quantification of an SME’s ‘RD Intensity’ by reference to its accounting data for the period of claim.
• The introduction of defined subcontractor cost analysis.
• Identification of the company’s business, satisfying the ‘relevant’ RD test.
• The electronic delivery of claim notifications under the Chapter 2 regulations, supplementing the FA 1998^[2] originating legislation by prescribing the delivery of data on the company’s tax return together with ‘associated RD information’.

The Regulations take effect on 2 October 2024 for companies registered in Engalnd & Wales and Northern Ireland.

They can be viewed here, and give effect to part of the consolidated 2023 reforms for RD
relief incentives: https://shorturl.at/XAYeP

---

^[1]https://www.gov.uk/government/publications/research-development-rd-tax-relief-reforms
^[2] See paragraph 83WA of Schedule 18 to the Finance Act 1998

The UK government has been relatively quiet about ongoing support for the feted ‘Science Super Power’ we are to become by 2030 in the run up to the election writes MARIA KITT, Director, Tax insight UK.

However, we spotted a boost for those within green automotive & EV technologies was ‘recently’ announced: does the amount seem adequate to you?

https://www.gov.uk/government/news/166-million-boost-to-power-up-chips-used-in-electric-cars-and-green-energy-industry

If you are a company undertaking engineering / development and design work in this important space, we can offer a free consultation on funding opportunities currently available. Do get in touch.

As we approach the beginning of FY 2024, [ 01 April 2024], writes MARIA KITT, PARTNER TAX INSIGHT UK, a number of key changes will take effect, building on the initial HM Treasury 2021 Consultation and outline ‘Corporation tax roadmap’ for innovative companies. The last part of these reforms focuses upon promoting inward RD investment, an achievement which at first sight seems at odds with global marketplaces and global science and technology breakthroughs. The rules on overseas subcontracting costs have reached their first stage – Consultation – in the legislative processes and can be looked at below together with a round up of FY 2024 tax impacts on R & D for UK companies.

At Spring Budget 2021, the government announced a review of the Research and Development (R&D) tax reliefs. The objectives were to ensure that the UK remained a competitive location for cutting edge research, that the R&D reliefs continued to be fit for purpose, and that taxpayer money was effectively used. The government concluded the review at Autumn Statement 2023 with the announcement  of the R&D merged scheme.

At Autumn Budget 2021, the Chancellor announced reforms to support modern research methods. They included expanding the R&D reliefs to cover  data and cloud costs, refocusing support towards innovation in the UK, and changes to target abuse and improve compliance. HMRC published draft guidance on the implementation of these reforms in December 2022. The government is grateful for the 63 responses received. Respondents included individuals, industry groups, businesses, accountants, agents and accountancy professional bodies.

At Spring Budget 2023, the government announced that the measures to refocus R&D relief on innovation in the UK will come into effect from 1 April 2024 instead of 1 April 2023. This allowed the government to consider the interaction between this and the design of a ‘universal’ / merged R&D relief, combining the current SME and RDEC reliefs into one 20% tax credit.

At Autumn Statement 2023, the government confirmed the introduction of the merged R&D expenditure credit and changes to the way contracted out R&D activities will be treated from 1 April 2024. The government confirmed that the overseas rules will apply from 1 April 2024 too. Legislation on the new merged R&D expenditure credit and the enhanced support for R&D intensive lossmaking Small and Medium Enterprises is included in the Finance Bill.

2024 Overseas expenditure by RD companies – measures deferred from 01/04/2023 –

The proposal is that for accounting periods beginning on or after 1 April 2023, for both the small or medium enterprise (SME) research and development (R&D) tax relief and the R&D Expenditure Credit (RDEC), to be qualifying expenditure, expenditure on payments to subcontractors is required to be UK expenditure, or to be qualifying overseas expenditure (CTA09/1138A). Further details can be read here,

https://www.gov.uk/government/consultations/draft-guidance-research-and-development-rd-tax-reliefs/research-and-development-rd-tax-reliefs-draft-guidance

The current state of this draft legislative proposal is ‘Evaluation’, with legislation to follow on.

M Kitt 20 March 2024

Our expert author MARIA KITT, was asked to brief the accountancy and tax profession on the Autumn Statement tax policy changes. The full article can be read here:

Yesterday the Chancellor’s proposals to move toward a single RD incentive began their legislative process through parliament, consolidating the reforms begun by HM Treasury in November 2021. For innovative companies, the changes will be fairly marginal and interestingly there was no sign of the offshore subcontracting limitations appearing yet in legislative proposals (Good news in a global RD economy perhaps?). The move also readjusts the RD incentive back to where it began in 2002.

The practical application of the changes (see below) must be read against the declining corporate tax rate for SME companies, changes to dividend taxation for company owners and amendments to national insurance contributions and capital allowances incentives. A Budget intended as fiscally stimulating for growth, an ‘Autumn statement for growth’ has clear plans to reduce government debt with the UK being the third lowest of the G7 by 2028/9.

The full statement can be read here:
https://assets.publishing.service.gov.uk/media/655e107697196d000d985d6b/E02982473_Autumn_Statement_Nov_23_Accessible_v3.pdf,
together with the proposed amendments to tax rates & allowances from 01 April 2024, 
https://www.gov.uk/government/publications/autumn-statement-2023-overview-of-tax-legislation-and-rates-ootlar/autumn-statement-2023-overview-of-tax-legislation-and-rates-ootlar

The Tax Insight team are available to talk through the new look incentives for your innovative company, and / or the personal tax adjustments for company directors

Contact Maria@tax-insight.co.uk

And is now published by Bloomsbury Profesional Press, live online here, covering the key FA 2023 changes to UK tax incentives, including:

• The digitalisation of claims and claim notifications, effective from August 2023.
• The extension of the tax definition of R & D cost collection to include wider data costs and cloud computing costs
• The restrictions to subcontractor (offshore) costs from 2024 and subcontractor (UK) costs from April 2021
• Practical examples of how and when to claim R & D tax reliefs &
• The international dimensions of R & D tax incentives for larger innovative companies.

Working closely in the STEM community for the past 20 years, our expert author, Maria Kitt cuts through the complexity of the reliefs to ensure readers are fully up to speed with this important area of tax for innovative companies

https://www.bloomsburyprofessionalonline.com/view/research-development-reliefs/research-development-reliefs.xml

Corporation tax deductions: What is a tax deductible company expense? asks MARIA KITT, Director Tax Insight UK

Its not often we have an interesting tax case to steer our attention away from our innovative companies. This case is an exception – Back in 2014, Scottish Power claimed a tax deduction of some £28m for the fines it paid  to its Regulatory Body, GEMA, further to action taken against it for mis-selling tariffs and services and fuel supplies to consumers including charities, vulnerable customers and consumers/consumer groups. The numbers and time span speak for themselves but this is an interesting point of tax law – whilst ALL receipts potentially linked to a company’s business activities are taxable, not all of the payments a company makes are deductible.

In the case of Scottish Power it claimed a tax deduction on its fines – whereby the tax payer shares the burden of  its penal costs for breaking the law/regulatory code, (some 25% of £28m)!

The taxation of companies can appear superficially puzzling at times, but hopefully this case highlights the fairness that underlines UK Corporate Tax law & policies and the appetite HMRC has for ensuring fairness is applied no matter the size and resource of its opposition. The full case can be read here…………https://assets.publishing.service.gov.uk/media/64f727cc9ee0f2000fb7bf02/Scottish_Power_Ltd_and_others_v_HMRC_final_decision.pdf