R&D tax relief – additional information form
Claiming R&D tax relief for Research and Development is poised to undergo increased stringency as HMRC takes measures to curb an estimated £1.13 billion worth of fraud and errors.
From 8 August 2023, all businesses, or their R&D advisers, will be obliged to complete an Additional Information Form alongside their company’s corporation tax return while submitting R&D tax relief claims. This additional procedure will be facilitated through a new HMRC online portal.
What is the purpose of the new Additional information form for R&D?
The aim of this updated process is to enable HMRC to swiftly evaluate the credibility of each claim. Notably, it will provide HMRC with details of the R&D agent engaged by the business, allowing HMRC to assess the level of expertise involved in formulating the original claim.
A significant aspect of this change is that HMRC intends to employ the data from this form to assess claims based on their magnitude and business sector, thereby profiling the associated risk.
This initiative comes as a response to the considerable instances of fraud and errors in R&D claims. In July, HMRC reported that approximately 17% of claims were fraudulent, a stark increase from the previously stated estimate of 3.6%.
We asked Tim Humphries, one of our Tax Partners for his thoughts “to some the new regulations might appear excessive, especially when you consider that larger entities might be submitting multiple claims. However, when you consider the high levels of inaccurate claims and fraud detected in R&D claims businesses engaged with R&D must now ensure they are transparent in their demonstration of qualifying activities to avoid potential enquiries”.
R&D tax relief and SME businesses
For SME businesses who are used to providing less intricate details in R&D claims, these new requirements could pose a challenge. Tim added, “some smaller enterprises will be used to handling their own R&D claims and these might be significantly affected by the heightened demands of the Additional Information Form. Any SME business that continues to prepare their claims themselves might find they require assistance with these new requirements”.
What else does the R&D Additional Information Form include?
The content of the Additional Information Form includes a signature from a designated senior officer of the claiming company and comprehensive details about the R&D project. This also includes the name of the agent advising on the claim, cost breakdowns, the number of projects conducted, and varying levels of project description based on the number of projects submitted. This move is a precursor to broader reforms in the UK’s R&D regime.
Aims of proposed draft legislation
There are further changes to R&D on the horizon. Proposed draft legislation was issued in July which aims to merge the existing Research and Development Expenditure Credit (RDEC), which was predominantly used by larger companies, and the small and medium enterprises (SME) R&D relief into a single R&D relief scheme, effective from April 2024. The objective is to simplify tax procedures and unify qualifying rules, while controlling the overall cost to the Government.
Tim added “whilst merging the schemes might, for many, seem to be a step towards simplification, the current proposals further reduce the relief available to SMEs and could potentially affect the UK’s attractiveness to international investors on the basis that R&D tax relief is what brings them to the UK”.
If you would like to speak to a member of the RPGCC tax team about R&D tax credits, or indeed any area of corporate or personal tax, please contact contact us or telephone us on 020 3697 7147. Or you can visit our web chat in the bottom right corner which is manned during office ours and you can leave a message out of hours.
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