HMRC Up The Ante On R&D Claims In recent times, there have been significant shifts in the regulations surrounding Research and Development (R&D) tax relief claims for businesses in the UK and additional information required. These changes aim to ensure that claims are accurate and legitimate, weeding out any erroneous or fraudulent submissions. However, adapting to these new requirements can be a bit of a maze for SMEs. Let’s break down what you need to know in plain English. First and foremost, it’s crucial to understand that the new regulations demand more detailed information than ever before when submitting R&D tax relief claims – the landscape has changed dramatically, and you should not expect to file the same information as in earlier years. This means businesses must provide a breakdown of costs across different qualifying categories, on a project-by-project basis and offer a comprehensive description of the R&D work they’re claiming for within the new required format.
The additional requirements include the following: 1. Additional Information Form (AIF): For any submissions made from 8th August 2023, an Additional Information Form (AIF) must be filed prior to the submission of the Corporation Tax Return (CT600). Without this, the R&D claim will simply be rejected and removed from the return. 2. Prenotification of a claim: For accounting periods commencing on or after 1 April 2023, there are prenotification requirements that must be carefully considered to avoid missing out on a claim altogether. 3. Endorsement by a Named Senior Officer: Every claim must be validated by a senior officer within the business. This ensures accountability and transparency in the claiming process. 4. Identification of Advising Agents: Any external agents who provided advice on compiling the claim must be named. This step is essential for transparency and accountability. 5. Detailed Cost and Project Breakdown: Costs related to R&D work must be meticulously broken down across different qualifying categories. Additionally, a thorough description of the R&D activities is needed to provide a clear understanding of the claim. Whilst for most this should be business as usual, the AIF required to be submitted, requires costs to be split on a project-by-project basis and the AIF provides set questions to be responded to with regards project descriptions. So, why the sudden change? These additional submission requirements have been implemented to tackle incorrect and potentially fraudulent R&D claims. It’s part of HMRC’s broader effort to crack down on malpractice, which has seen a surge
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Gina Gardner ACA CTA Senior Corporate Tax Manager, Ballards LLP
in unregulated R&D tax consultancies in recent years. The aim is to ensure that R&D tax relief is rightfully granted to businesses genuinely investing in research and development. However, these new regulations have had a significant impact on businesses. Since the introduction of the mandatory AIF on August 8th, a significant number of the claims submitted have been deemed invalid by HMRC. This is a clear indication of the immediate effect of the compliance changes on R&D tax relief claims. For businesses that have not adhered to these new forms, HMRC will be sending out letters notifying them that their R&D claim is invalid unless they make the necessary amendments. This serves as a critical reminder that keeping up with these changes is crucial to avoid any potential setbacks in claiming the relief your business is entitled to. While it’s essential to navigate these new requirements, it’s also worth noting that they come on the heels of other proposed changes to the R&D tax relief regime. One significant change is the unification of the two separate relief schemes, with the R&D Expenditure Credit (RDEC) route set to take precedence. This unification aims to streamline the process and make it more accessible for businesses.
Additionally, there’s a proposal to allow large companies to claim for qualifying payments to subcontractors, similar to the SME scheme rules. While this could benefit some claimants within the RDEC scheme, it does raise questions about subcontractors’ ability to make claims, as well as those whose R&D is subsidised. Lastly, the introduction of a more generous SME cap has been proposed. This means that large corporations will have access to higher relief. The cap is determined by the PAYE/NIC liabilities for all employees of the company, regardless of their involvement in R&D activities. In light of these changes, it’s essential for SMEs to stay informed and proactive. Ensuring that your R&D tax relief claims are accurate and compliant not only safeguards your business but also helps in securing the relief that can significantly impact your bottom line. Remember, a clear understanding of these regulations can be the key to successfully navigating the evolving landscape of R&D tax relief. Please contact Gina Gardner on gina.gardner@ballardsllp.com or call 01905 794 504.
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