In the labyrinth of business finances, Research and Development (R&D) tax credits stand out as a beacon of support for companies investing in innovation. These government incentives are designed to encourage businesses across various sectors to engage in groundbreaking projects that push industry boundaries. However, with the announcement of changes coming into effect in 2024, businesses are navigating a new terrain of rules and opportunities.
Introduction to R&D Tax Credits
R&D tax credits offer monumental benefits, acting as a key tool for companies, especially small businesses, startups, freelancers, and limited companies, to offset the cost of innovative activities.
The initiative was long reviewed as far too "complicated" for business owners and startups, therefore the main driving point behind the changes made in 2024 is to simplify the scheme overall.
By reducing their tax bill or allowing for a rebate, these credits make innovation more accessible and financially viable.
Changes in R&D Tax Credits for 2024
Substantial amendments are in store for the R&D tax credits landscape by 2024.
Effective from 1st April 2024, R&D Tax Credits will be confined to 20% of all eligible costs, with an annual limit of £20,000. Furthermore, SMEs undertaking subcontractor R&D will witness a reduction in relief by 50% to 10%. The revisions aim to curtail potential system misuse whilst maintaining support for authentic innovation efforts.
What to Expect in Terms of R&D Tax Credit Rates in 2024?
The revised R&D tax credit rates in 2024 will vary based on the size and category of the enterprise.
- For Small and Medium-sized Enterprises (SMEs), there will be a decrease in the relief rate from 130% to 86% and an annual cap of £20,000 will be introduced.
- The credit rate for Small to Medium Size Enterprises will also reduce from 14.5% to 10%. This implies that for every £100 spent on eligible R&D costs.
- Please note that these changes are applicable AFTER 1st April 2023. Which means if your accounting period ends after this date, your expenses occurring AFTER 1st April 2023 will be liable to the revised rates. To put it simply, if your accounting closes on 30th June 2023 then the changes will impact you after 1st April 2023 and so on.
- For Research and Development Expenditure Credit post-April 2023, there is an increase from 13% to 20%.
What are R&D Relief Rates in 2024?
Starting from the accounting periods after April 1, 2023, Small and Medium-sized Enterprises (SMEs) are now recognized as 'R&D focused' if they meet the criteria of having at least 40% of their total annual expenditure dedicated to R&D activities. This benchmark percentage, however, is set to decrease from 40% to 30% starting from April 1, 2024.
There is a safety net in place for businesses that are unable to fulfil the R&D intensity standards due to unforeseen situations. Such companies are granted a one-year leniency period to prevent oscillation in their qualification status. As long as they reached the intensity threshold and successfully secured R&D intensive support in the prior year, they are allowed to claim the benefit.
Unprofitable SMEs that meet the R&D intensity standard can take advantage of R&D Tax Credits at a 14.5% rate for eligible expenses charged for accounting periods after April 1, 2024. This percentage is anticipated to stay consistent throughout 2024
Other Changes for R&D Tax Credit in 2024
Digital Submission Process:
You need to submit your R&D Tax Claim online by signing in to your government gateway.
Detailed Information Required:
You must include more information when submitting your R&D Tax Claim, such as a detailed category of your R&D expenditure within the said tax year.
Claims Must Be Authorised:
One of the biggest indicators that proves that HMRC is strengthening its grip on R&D Tax Claims. Your claims must be authorised by an agent, almost like an audit on claims.
Details of Your Agency:
HMRC requires detailed information about your agency that assists you in helping your R&D Tax Credit. For example, if you are applying the tax credit with Debitam you`ll be required to provide our track record.
Providing an Advanced Claim Notification:
It is mandatory for new claimants or companies without claims in the past three fiscal periods to provide an advanced claim notification. This process applies to businesses seeking to claim benefits for the first time, or those that have not claimed in the previous three accounting periods. They are required to notify HMRC online beforehand. This early notification enables HMRC to proactively educate companies about appropriate R&D procedures, and it also adds an additional layer of protection against unlawful claims.
Upgraded Expenses in Tech:
Your cloud expenditure, spending on data analytics etc. are required to be included within your R&D Tax Claim.
Conclusion
Although the changes to R&D tax credits may seem daunting, they are ultimately designed to streamline and simplify the process for businesses. By being aware of these changes and understanding how they may impact your company, you can strategically plan and maximize the benefits from R&D tax credits. As always, it is important to consult with a professional advisor or accountant for personalized guidance and support in navigating the R&D tax credit landscape. Stay informed and stay innovative!
