How HMRC are tightening up on Research & Development claims
HMRC are tightening up on the Research & Development (R&D) claims process in order to tackle errors and suspected abuse of the regime. They have therefore introduced what they feel will be a more robust process to enable them to monitor the whole claims process and improve compliance.
As some businesses will know, the Research & Development (R&D) tax relief can provide valuable support where a business is investing in innovation and developing new processes, products or services. Whether this be by way of reducing a company’s taxable profits or by way of claiming a tax credit for a cash repayment, this can provide a company with significant relief, in particular with their cashflow.
It is therefore vital that these claims are made correctly, especially with the changes and reforms that took effect from 1 April 2023.
Are the rates of R&D relief changing?
Yes. Under the R&D incentive, they offer two schemes for relief. These are the SME Scheme and the RDEC Scheme.
From 1 April 2023, for expenditure under the SME Scheme, the additional deduction will decrease from 130% to 86%. The SME Credit Rate will reduce from 14.5% to 10%, except for loss making SMEs that are R&D intensive. If an SME’s qualifying expenditure is at least 40% of their total expenditure, they will be classed as R&D intensive and will be able to claim the higher payable credit rate of 14.5% for qualifying expenditure.
For the RDEC Scheme, the rate will increase from 13% to 20%.
What are the new requirements to make a claim?
For accounting periods beginning on or after 1 April 2023, a company must notify HMRC if they plan to claim R&D tax relief or expenditure credit. You currently do not have to notify HMRC in advance of making a claim – a claim is simply made through Company Tax Return (CT600).
You must pre notify HMRC if:
- you’re claiming for the first time
- you’ve claimed for the previous tax year, but you 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
You (or your agent) must notify HMRC by completing and submitting the claim notification form. This must be made within 6 months of the accounting period in which the claims relates to. If you do not submit the notification by this deadline, your claim will not be valid and the opportunity to claim will be lost. Therefore, it is vitally important that you ensure whose responsibility it is to make the notification. Double check with your advisor and do not assume your agent is making the notification for you.
For information on how and what information you will require to make the notification, please visit the link below.
What are the changes from 1 August 2023?
From 1 August 2023, you must submit an additional information form to support all R&D tax relief or expenditure credits. This is regardless of whether or not you have previously submitted claims in the past or for prior accounting periods.
If you do not submit the additional information form, HMRC will not be able to process the claim.
For information on how and what information you will require to make the notification, please visit the link below. Again, this can be provided by either the company or an agent but make sure this is submitted ahead of any claim being made.
As stated, it is really important that you get the above compliance matters in order ahead of making a claim. If you would like to discuss how these changes may affect you and/or your businesses R&D tax relief claim, please contact your usual NRB advisor or our tax team.
HMRC General R&D Guidance: Claiming Research and Development (R&D) tax reliefs – GOV.UK (www.gov.uk)
HMRC Notification Guidance: Tell HMRC that you’re planning to claim Research and Development (R&D) tax relief – GOV.UK (www.gov.uk)
HMRC Guidance for Additional Information to be provided: Submit detailed information before you claim Research and Development (R&D) tax relief – GOV.UK (www.gov.uk)