How R&D Tax Credits Are Changing From April 2023

A lot has changed in the world of Research and Development (R&D) over the last few months, with the government and HMRC introducing some fairly major changes as of 1st April 2023.

Overseas subcontractor and EPW Costs

Payments made to overseas subcontractors and overseas externally provided workers (who are not

taxed through UK PAYE) will no longer be allowable costs for accounting periods starting after 1st April 2023. There is an exemption for subcontracted work that has to be undertaken overseas because the required ‘geographical, environmental or social conditions are not present or replicable in the UK’, but this is unlikely to apply to the majority of subcontracted work that is currently claimed.

Digital Submission

From April 1st 2023, all corporation tax returns, including amended returns, will have to be submitted

digitally – postal returns will no longer be accepted.

Request for additional information

From April 1st 2023, All claims submitted to HMRC must include additional information, such as a

breakdown of the types of R&D expenditure and the details of any agents who have worked on the claim.

Claims will also have to be signed off by a senior officer of the company.

Pre-notification of claims

New rules require first-time relief-claiming businesses (or businesses who have not claimed in the last three financial periods) to submit a pre-notification of their claim to HMRC online.

SME R&D claimants

For expenditure incurred on or after 1 April 2023, the additional corporation tax deduction for SMEs

claiming R&D relief will reduce from 130% to 86% and the payable tax credit rate will reduce from 14.5% to 10%.

The financial impact for SMEs in a corporation tax loss position for a particular accounting period is that the cash tax benefit currently available of up to 33.35% (230% × 14.5%) is to be reduced to 18.6% (186% × 10%), which is a significant reduction. If, instead, an R&D claimant company chooses to carry forward tax losses until a taxable profit arises to offset against the claim, the R&D relief would generate a cash tax benefit of 21.5%, i.e. 86% × 25% (increased corporation tax rate to 25% from the existing 19% rate).

Large company claimants

The large company R&D credit rate (RDEC) is due to increase from a current rate of 13% to 20%.

The cash benefit for claimant companies is to increase from a current rate of 10.53% (13% × 81%, due to the current 19% corporation tax rate) to 15% (i.e. 20% × 75%, due to the 25% corporation tax rate to apply). Another factor to consider is the profit before tax benefit, which can be recognised in the financial statements of claimant companies, increasing from 13% to 20%. This could represent a

significant boost to RDEC claimants, particularly where qualifying R&D expenditure is sizeable.


HMRC’s new focus on improving compliance invariably means more ‘red tape’ for businesses to navigate and more personal culpability for company directors as claims must now be endorsed by a named senior officer.

Having worked with Tech and Startup businesses for many years, we are all too aware of the financial burden these changes could have on your company. If you have further questions about R&D changes, contact David Masih, our client relationship partner who explains how OnTheGo Accountants can help your business with R&D. Call 03330 067 123 or email info@onthegoaccountants.co.uk.