This week, draft legislation has been released, shedding light on the merging of the existing SME scheme and RDEC scheme into a single, unified R&D tax relief program. This new scheme is slated to be effective for accounting periods commencing on or after 1st April 2024.
As of now, the main features of the proposal are as follows:
- Single R&D Relief: The proposed scheme aims to introduce a unified R&D relief for the majority of companies, which will be provided as an expenditure credit. This credit will be set at a flat 20% gross rate, subject to corporation tax. Consequently, eligible companies would receive a net credit of 15%. It is essential to note that the legislation allows for the possibility of changing this rate in the future.
- Enhanced Rates for R&D Intensive SMEs: Despite the intention to simplify with a single scheme, the proposal suggests that R&D intensive SMEs (those spending more than 40% of their expenditure on R&D) will still be able to claim enhanced rates after 1st April 2024.
- Overseas Expenditure Restrictions: The proposal includes previously published restrictions on overseas expenditure for subcontractors and externally provided workers (EPWs). Qualifying overseas expenditure will only be eligible if it relates to geographical, environmental, or social conditions not present or replicable in the UK.
- Claiming UK Based Subcontractors: All companies, regardless of size, will be allowed to claim UK based subcontractors. However, a company cannot make an R&D expenditure credit claim if it has been subcontracted by another UK based company.
- No Claims for Subsidized Costs: Companies will not be eligible to claim R&D expenditure credits for costs that have been subsidized, such as those covered by a grant.
- Changes to EPW Cost Claims: Proposed changes to claiming EPW costs will restrict claims to 65% of the staff providers’ relevant staff costs, rather than solely 65% of the payment made to the staff provider. There are concerns about the feasibility of this provision, as staff providers may be unwilling to disclose their payroll information to companies.
- Generous SME Cap Rules: The proposed PAYE/NIC cap that limits the credit will adopt more generous rules applied to SMEs.
It is important to emphasize that the government is currently keeping its options open and is open to potential changes. Therefore, a period of technical consultation will take place before any final decisions are made.
It should also be noted that further updates will be announced in an upcoming fiscal event, and we will closely monitor these developments.
How can we help you?
The current dynamic nature of R&D regulations can be perplexing for companies. Hence, seeking professional assistance for claims is advisable. Now is the opportune time to explore expert guidance in this area.
IF R&D Tax Credits Ltd is a leading firm of R&D tax credit experts who specialise in R&D tax claims. Our focus is on helping clients across Ireland maximise the benefits from these very worthwhile tax incentives and we have the expertise to submit your R&D claim correctly.
Contact us here for further information.