New Requirements for R&D Tax Relief Claimants from August 2023

Companies now must pre-notify HMRC and provide more information about their development work to access R&D Tax Relief schemes.

We have previously written about changes to the R&D tax relief schemes that were announced in the Autumn Statement 2022 and Spring Budget 2023. The government has brought about these changes and imposed stricter requirements regarding the claims process for several reasons, not least to discourage fraudulent claims and tackle general abuse of the system. You will likely be aware of the increased vigilance from HMRC in respect of R&D tax relief claims, brought about by the rise in fraudulent, exaggerated or unsubstantiated claims.

HMRC has since made a couple of amendments to the reforms that businesses and accountants should be aware of, as failure to comply may result in R&D claims being invalidated or a protracted HMRC enquiry.

Below we discuss how your compliance and administration responsibilities will change in light of the latest reforms.

New notification process – tell HMRC you’re planning to claim R&D tax relief

Businesses must tell HMRC if they plan to claim R&D tax relief or expenditure credit for accounting periods beginning on or after 1 April 2023 if:

  • You are claiming for the first time.
  • You have claimed for the previous tax year but did not submit that claim until after the last date of the claim notification period (the claim notification period ends 6 months after the end of the period of account).
  • Your last claim was made more than 3 years before the last date of the claim notification period.

This should be done by completing and submitting a claim notification form and is relevant for both the SME and RDEC schemes.

If you’ve not notified HMRC within the deadline, and you’ve already submitted your company’s Corporation Tax Return, HMRC will write to you to confirm that they’ve removed your claim for R&D tax relief from your Company Tax Return.

If you’ve previously claimed using the paper Company Tax Return, you should submit a claim notification form to avoid any queries or delays when HMRC process your claim.

When you must notify by

The claim notification form must be submitted no later than 6 months after the end of the period of account that the R&D claim relates to. Claims will be rendered invalid if the form is not submitted within the deadline.

Example 1 — when to submit for a 12-month period of account (one accounting period)

If the period of account in which you incur R&D costs runs from 1 January 2024 to 31 December 2024:

  • the first day of the accounting period is 1 January 2024
  • the end date of the accounting period is 31 December 2024
  • submit the claim notification form between 1 January 2024 and 30 June 2025

Example 2 — when to submit for a 15-month period of account (2 accounting periods)

  • the start date of the first accounting period is 1 January 2024, and the end date is 31 December 2024
  • the start date of the second accounting period is 1 January 2025, and the end date is 31 March 2025
  • submit the claim notification form between 1 January 2024 and 30 September 2025
Who can submit

You can complete and submit a claim notification form if you are:

  • a representative of the company
  • an agent working on behalf of the company.
What information you will need

To complete the claim notification form you will need the following details:

  • The company’s Unique Taxpayer Reference (UTR), this must match the one shown in your Company Tax Return.
  • The name of the main senior internal R&D contact in the company who is responsible for the R&D claim, for example a company director.
  • The contact details of any agent involved in the R&D claim.
  • The accounting period start and end date for which you’re claiming the tax relief or expenditure credit, this must match the one shown in your Company Tax Return.
  • The period of account start and end date.
  • A summary of the high-level planned activities, for example if you’ve developed software what it will be used for to show that the project meets the standard definition of R&D — you do not need to include evidence on the form, but you will need to provide further information on the additional information form.
Companies will soon have to provide additional information about their development work to access R&D Tax Relief schemes.

From 8 August 2023, all applicants must submit a digital additional information form (AIF) that provides more detailed information about R&D projects and expenditures. Claimants will need to submit in-depth descriptions of research and development work on a project-by-project basis, a list of categorised costs and details of indirect qualifying expenditure. Companies must submit the AIF before their Corporation Tax Return, a policy devised presumably to incentivise claimants to consider their R&D tax claims earlier in the financial reporting process.

HMRC has stated that failure to submit the AIF will invalidate an R&D Tax Relief claim and result in automatic rejection. These requirements will make the claims process more complex and time consuming for businesses, especially for those that do not work with specialist R&D tax advisors. Working with experienced consultants is the best way for legitimate claimants to navigate the new technical requirements and to reduce the risk of lengthy HMRC enquiries.

From 8 August 2023, all R&D tax relief claims must be submitted digitally to HMRC, with the AIF digital form to be made available from 1 August.

HMRC has published the following AIF guidelines:

When you must submit

From 8 August 2023 you must complete and submit an additional information form to HMRC to support all your claims for Research and Development (R&D) tax relief or expenditure credit.

You will need to send HMRC an additional information form before you submit your company’s Corporation Tax Return. If you do not do this, HMRC will write to you to confirm that we’ve removed your claim for R&D tax relief from your Company Tax Return.

You can submit the additional information form before 8 August 2023 if you want to give HMRC more information.

Who can submit

You can complete the additional information form if you’re:

  • a representative of the company
  • an agent acting on behalf of the company.
What information you will need

To complete the additional information form you will need the following details.

1. Company details

Your company’s:

  • Unique Taxpayer Reference (UTR), this must match the one shown in your Company Tax Return
  • employer PAYE reference number
  • VAT registration number
  • business type, for example your current SIC (Standard Industrial Classification) code.

2. Contact Details

The contact details of:

  • the main senior internal R&D contact in the company who is responsible for the R&D claim, for example a company director
  • any agent involved in the R&D claim.

3. Accounting period start and end date

The accounting period start and end date for which you’re claiming the tax relief, this must match the one shown in your Company Tax Return.

4. Qualifying expenditure details

Include details of the qualifying expenditure.

If you meet the conditions, you can claim for either or both:

  • tax relief as a small and medium-sized enterprise (SME)
  • expenditure credit as a large company or SME

If you’re claiming for SME tax relief, you can claim for:

  • cloud computing costs, including storage, for accounting periods beginning on or after 1 April 2023
  • consumable items, for example materials or utilities
  • data licence costs, for accounting periods beginning on or after 1 April 2023
  • externally provided workers
  • payments to participants of a clinical trial
  • software
  • staff
  • subcontractor costs

If you’re claiming for expenditure credit, you may be able to claim for:

  • cloud computing costs, including storage, for accounting periods beginning on or after 1 April 2023
  • consumable items, for example materials or utilities
  • contributions to independent R&D costs
  • data licence costs, for accounting periods beginning on or after 1 April 2023
  • externally provided workers
  • payments to participants of a clinical trial
  • software
  • staff
  • subcontractor costs

5. Qualifying indirect activities

Include the amount of qualifying expenditure for each project of qualifying indirect activities, that do not directly lead to resolving the uncertainty.

This may include:

  • creating information services for R&D support such as preparing a report of R&D findings
  • direct supporting activities such as maintenance, security, administration and clerical activities and finance and personnel activities, for the share that relates to R&D
  • ancillary activities needed to begin R&D, for example taking on and paying staff, leasing laboratories and maintaining R&D equipment, including computers used for R&D purposes
  • training required to directly support the R&D project
  • research by students and researchers carried out at universities
  • research including data collection to make new scientific or technological testing, surveys or sampling methods, where this research is not R&D in its own right
  • feasibility studies to inform the strategic direction of a specific R&D activity

This cannot include any costs related to data licensing or cloud computing.

6. Project details

The number of all the projects that you’re claiming for in the accounting period and their details.

If you’re claiming:

  • for 1 to 3 projects, you need to describe all the projects you’re claiming for that cover 100% of the qualifying expenditure
  • for 4 to 10 projects, you need to describe those projects that account for at least 50% of the total expenditure, with a minimum of 3 projects described
  • for 11 to 100 (or more) projects, you need to describe those projects that account for at least 50% of the total expenditure, with a minimum of 3 projects described — if the qualifying expenditure is split across multiple smaller projects, describe the 10 largest

7. Give a description for each of the projects

HMRC has provided guidelines covering what information is required to accompany each project under the following headings:

  • What is the main field of science or technology.
  • What was the baseline level of science or technology that the company planned to advance.
  • What advance in that scientific or technological knowledge did the company aim to achieve.
  • The scientific or technological uncertainties that the company faced.
  • How did your project seek to overcome these uncertainties.
  • Which tax relief you’re claiming for and the amount.
Get help with your R&D tax relief claim

Our R&D tax professionals will help you navigate these changes, protect you against non-compliance and prepare strong R&D tax relief submissions that reduce the chance of HMRC enquiries. In today’s regulatory environment, many businesses work with experienced tax consultants to avoid mistakes and to maximise the strength of their R&D tax relief claims.

If you have any questions about the reforms, R&D tax relief in general, or how to make a claim, contact our tax professionals on 0161 904 0044 or team@costcare.co.uk.

 

 

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