As the start of a new tax year begins we’d like to focus on R&D tax relief claims and the latest changes that businesses who are claiming, or are considering claiming, should be aware of.
The spring budgets of 2021 and 2022 have both seen very significant changes to how innovating companies can apply R&D Tax Relief to their tax calculations
Whilst many businesses will have applied for R&D Tax Relief for many years and have a good understanding of the scheme, recent developments in R&D tax legislation mean that extra caution is now needed!
It is important to remember that R&D Tax Relief is a huge cost to the Treasury and as a result, HMRC is currently carrying out a review to ensure that the tax relief programmes are having the positive effect required to make them worth their cost to the UK economy.
In both Spring 21 and Spring 22 budgets, the Chancellor announced continued reform of R&D tax credits to ensure they are effective and better value for money.
These reforms include:
- Crackdown on non-compliance – Additional resources and new technology for HMRC including the recruitment of 1,200 additional compliance staff to ensure corporation tax returns are accurate and supported by facts.
- Claims to be signed off by a client’s director – Tax Relief claims will in future require much more detail on what type of expenditure the claim covers, the nature of the advance sought, the field of science or technology and the technical uncertainties overcome. A Director within the claiming company will need to sign off that the technical report submitted represents an honest description of that which has taken place, and that the associated costs are accurately represented.
- Claims to be submitted digitally with a full technical narrative – Tax Relief claims will be submitted digitally, and all claims will require a supporting technical report.
- Disclosure of the adviser that compiled the claim – To protect the integrity of the R&D tax reliefs scheme and tackle abuse, claims will need to include details of any agent who has advised the company on compiling the claim.
- Pre-submission notification to HMRC for all claims at start of the financial year – Claiming companies will need to notify HMRC at the start of the year that they intend to make a claim at the end of the year.
- All qualifying R&D must take place within the UK – Restricting qualifying R&D to UK-based activities only. R&D which takes place outside of the UK, but is paid for by a UK company, would no longer be allowable as a qualifying cost.
- SME cap on payable tax credit – Maximum claim value from April 2021 expenditure = £20k + 3 x PAYE total (all employees + connected subcontractors and/or Externally Provided Workers) – to reduce fraud.
Recent cases of HMRC tribunal concerning R&D Tax Relief have also highlight HMRC’s focus on R&D activity which is considers to be subsidised or subcontracted to the claiming business. Such R&D, specifically R&D which has been paid for, or subsidised by the claimant’s customer, for example, is not allowable under the R&D Tax Relief Scheme for SMEs.
It is clear the changes will have far reaching impacts upon current and future claimants and that HMRC have every intention of becoming much more rigorous in its application of the rules governing R&D Tax Relief.
Knowsley Chamber Executive Member ABGI are internationally renowned Innovation Funding Specialists, whose PHD-qualified consultants can optimise our members’ R&D Tax Relief claims, enabling a smooth and simplified approach to the process of claiming.
To provide expert advice in the application of R&D Tax Relief, professional advisers need not only accounting expertise, but also knowledge and proficiency in the sciences and technologies that our innovative members are advancing.
For more information or to discuss R&D claims in more detail, please contact Russell McGrath, Innovation Funding Specialist at ABGI, on 07507902398 or e-mail Russell.email@example.com Or Neil Roscoe, Business Development Manager, Knowsley Chamber on 07384 900 809