We have just had our first-ever webinar - you heard that right, our first one! 🙌
The session included a practical summary of the recent R&D Tax Relief changes but let’s be honest, this is what most webinars on the topic covered. However, our one-hour session was a bit different. As it also included solutions and guidance from two of our very own Tax Advice Specialists, who discussed in detail how you can practically apply the recent R&D Tax Relief changes to the benefit of your clients.
The main talking points were:
Why collaboration with your clients is essential in submitting R&D Tax Relief claims.
What R&D Tax Relief journey to take your clients on depending on if claims have been made in the past.
And how to identify which clients are eligible for R&D Tax Relief.
The purpose of this was to further equip our Diagnostax members with the tools they need to reward eligible clients for R&D Tax Relief.
It was a great webinar to say the least and this is the first webinar of the year so stay tuned for future webinar announcements and reserve your spot! 👀
But let’s get into the focus of this blog.
Since Spring 2022, we all can admit that the R&D landscape has changed. And given how technical the announced R&D Tax Relief changes were, like everyone else, you may have questions on your mind that you still need answers to.
Naturally, we thought it would be best to shine a light on the Q&A section of our R&D Tax Relief Changes webinar, where our two Tax Advice Specialists answered questions that our customers asked both pre and during the webinar; there may be an answer below that you are looking for.
So, go get yourself a coffee, sit back, relax, and get immersed in our webinar’s Q&A section.
Time for Q&A
Q. Which route provides the best benefit for an SME under the new rates? Stephanie Watson, ACA, R&D Tax Specialist at Diagnostax:
The best route is a loss-making SME where they can surrender the full 186% of R&D Qualifying Expenditure. The least favourable route is a breakeven SME looking to surrender the losses made by the 86% enhanced deduction. The benefit to your client will depend on several factors such as profit levels, R&D qualifying expenditure, and when the expenditure was incurred.
Q. With all the recent R&D changes, aren't the government just excluding risk-taking & investing in innovation from entrepreneurs, whilst in the early stages of their business? Stephanie Watson, ACA, R&D Tax Specialist at Diagnostax:
They’re not necessarily excluding startups, it’s more a case of its harder and that the client isn’t going to get much benefit. In terms of early-stage entrepreneurs who are investing substantially all their costs in R&D, they will get the new intensive rate. So, they will get more than other SMEs who focus on R&D later down the line.
Q. Do you need to calculate split R&D claims for company years that straddle 1st April 2023?
Stephanie Watson, ACA, R&D Tax Specialist at Diagnostax:
Unfortunately not. You don’t have to split, so essentially you just have to portion qualifying expenditure pre and post the 1st of April 2023 and then you apply the rates from there. Something that can be done quite easily in Excel if you’ve set it up nicely.
Q. My client outsources testing of their product to another country and can’t get it tested in the UK due to the geographical conditions. How will they be impacted by the changes?
Samantha Hind, CTA, Director at Diagnostax:
For accounting periods starting on or after 1st April 2024, HMRC plan to limit the expenditure claimable for sub-contractors and externally provided workers to UK-only costs. There are exceptions to this rule such as where it would be ‘wholly unreasonable’ for the company to replicate the work in the UK. HMRC acknowledges certain reasons why R&D cannot be undertaken in the UK such as geographical, environmental, or social conditions as well as legal or regulatory requirements as a result of which the research and development may not be undertaken in the UK. However, the cost and availability of workers are not accepted as exemptions to these new rules. We await further details on the changes and will update you in due course.
Q. Re the overseas labour restriction, how easy or hard is it to evidence that it's taken place within the UK for an R&D claim?
Stephanie Watson, ACA, R&D Tax Specialist at Diagnostax:
If we go with subcontractors first, as it applies to both subcontractors and externally provided workers, you will have to have evidence that the person doing the work is in the UK. So it could be that you’ve got a limited company and they have a statement that says “Residence occurred in the UK”. With EPWs, externally provided workers, you would have to provide a UK PAYE reference as part of the technical information form, you would have to put that in at the bottom.
It should be relatively easy to prove that side of it, the difficulty will be if HMRC tries and say that actually, that could have occurred in the UK. This is where the ‘wholly unreasonable’ phrase they are using comes in. For instance, if you want to test a product in a volcanic situation, obviously the UK can’t provide that environment and does not have a realistic way of testing that product, so you would have to do that overseas and that would be accepted. If it’s potentially laboratory tests, that would be historically done in Europe and there isn’t a lab set up in the UK to do it, but someone in the UK could replicate that environment for a small fee then HMRC might say “well actually, you could have asked someone in the UK, so we’re not going to allow it”.
In short, it’s easy to show it but might be hard to prove it in terms of whether it was okay or not to be inside or outside the UK. We will provide more information on this topic once we know the finer details.
Q. Does Diagnostax offer an R&D Tax enquiry service for clients that have made claims via other tax advisers, in-house, or via their accountant?
Samantha Hind, CTA, Director at Diagnostax:
Yes, we do. We are happy to offer it on a time-spent basis depending on what help you do require. Of course, there will be strict deadlines to meet with the R&D enquiries, so we need sufficient time to complete the work you request. If you do have a client who has worked with another tax adviser on their claim or you have made the claim for them, just let us know what help it is they are looking for. Please contact us for a quote directly at contact@diagnostax.co.uk
Q. What happens if we miss the notification deadline for a claim?
Stephanie Watson, ACA, R&D Tax Specialist at Diagnostax:
Then unfortunately for that period, an R&D Tax Claim cannot be made, unless the Company has made an R&D Tax Claim in any of the three preceding accounting periods.
Q. If we refer an R&D case to Diagnostax, who will make the notification to HMRC prior to the 6-month deadline after the year-end? Is it us as the accountant? Or does Diagnostax do that?
Stephanie Watson, ACA, R&D Tax Specialist at Diagnostax:
If it’s an online form, we can help with it as part of our complimentary scoping call. But if it’s an agent login form, which I do believe it is, we won’t be able to. But of course, we can provide you with the information and a link to the form so that you can submit it quickly.
Rounding up
We hope that this blog has given you clarity on some of the questions you may have been asking yourself following the Spring Budget 2023 and the recent R&D Tax Relief changes.
Our R&D Tax Relief changes webinar is exclusive to our DTX subscribers and is available upon request – just send a message to one of our team and we will get the recording sent over to you.
Are you a DTX subscriber and want to have your say in future webinars? Then fill out our short form below.
Couldn’t find the answer(s) you were looking for? Then leave your question in the comment section below and a member of our tax team will get back to you 👇