Significant Changes to R&D Tax Relief from 8th August 2023: What You Need to Know

From 8th August 2023 there are significant changes to the way R&D tax relief must be claimed. All claims must now be supported by an additional information form, and any agent who supports a business to make a claim must be registered with HMRC and take responsibility for the claims that they make on behalf of their client.

Why R&D Tax Relief is Being Reformed

The R&D tax credits scheme is fantastic for businesses. But to some degree, it has been a victim of its own success.

The government, to great fanfare, has promoted businesses to use R&D tax credits to help the UK economy prosper in a competitive global environment.

Unfortunately, some businesses and tax credit ‘agents’ took advantage of the system by making fraudulent or over-inflated tax relief claims. And HMRC has been under significant scrutiny to tackle fraud and abuse of the system.

So, in recent times, HMRC has started to crack down significantly on this fraudulent activity.

One negative outcome of this crack down is that a lot of businesses with legitimate claims have been deterred to put in their claims by what they perceive as a potential risk to their businesses because of the risk of a costly and time-consuming HMRC investigation.

The other issue is that over the years, suspect R&D tax credit ‘experts’ with little or no financial experience have flooded the market, promising to massively increase the size of their clients’ claims for a relatively small fee.

That’s why HMRC are dramatically changing the R&D tax credit system and the way businesses make a claim.

HMRC are effectively trying to raise the bar so that fraudulent claims and suspect tax credit agents can no longer prosper.

Importantly, companies with legitimate R&D claims, or who want to use R&D and innovation as a key part of their business strategy, have absolutely no reason whatsoever to stop submitting their R&D tax credit claims.

In fact, for legitimate claims, the aspects of research that can be claimed for are being broadened in scope. For example, costs linked to data licensing, cloud computing and mathematical advances will now qualify for R&D tax relief when, historically, data purchased and used in the R&D process could not be claimed.

Here’s the critical point: When they’re used properly, R&D tax credits can be a key driver of innovation, growth, value, and profits for a business.

What’s Changing on 8th August 2023: Additional Compulsory Information Form (Online)

Historically, as part of the CT600 corporation tax filing, companies would simply tick a box saying that they were claiming for tax credits without always providing a great deal of detail to support that claim.

From 8th August 2023, in order to tackle perceived errors and abuse of the R&D tax credit system, any Research and Development (R&D) tax relief claim must now be supported by an additional information form submitted to HMRC using the online government gateway – irrespective of the accounting period to which the claim relates.

This requirement applies to claims made under both the SME and RDEC schemes and will inevitably increase the amount of time needed to file a claim.

Importantly, the form must also be endorsed by a named senior officer of the company and must include details of anyone who has assisted with the claim such as an agent.

HMRC have confirmed that if the ‘Additional Information Form’ has not been completed, the R&D claim will be invalid and they will have the power to remove the claim from the company’s tax return.

The new online form will need to include:

1. The company’s unique taxpayer reference (UTR) – this must match the company’s tax return, employer PAYE reference, VAT registration number and SIC code;

2. The contact details of the main senior internal R&D contact (i.e. the company director) and any agent involved in preparing the claim;

3. The accounting period start and end date;

4. The scheme the claim is being made under (SME or RDEC);

5. Qualifying expenditure breakdown: Including total expenditure claimed for each qualifying project and qualifying indirect activities (QIA) for each qualifying project.

6. The number of projects claimed for and details of the claims.

Qualifying project descriptions must include information as to:

  • The main field of science or technology your project relates to.
  • The baseline level of science and technology at the start of your project.
  • What advance in that scientific or technological knowledge your company aimed to achieve.
  • The scientific or technological uncertainties faced.
  • How your project sought to overcome these uncertainties.
  • Additional information can be provided to supplement what is required for the form. This can include details of claim methodology (including sampling method) and details of your competent professionals.

In reality, reputable R&D advisors like Leonherman have been submitting R&D reports with the required information as part of every R&D claim so these changes will not have a significant impact on our operations.

Key Change from August 2023: You must identify the agent who helped to prepare your R&D claim

Historically, anybody could support your business to make an R&D tax credit claim.

Agents would make recommendations and help you fill out the claim form, but then take no responsibility for the claim being accepted by HMRC, and the onus was on you to sign off on the claim.

Crucially, these agents would have very little accountability if the claim was challenged by HMRC.

As of August 2023, this has changed.

From now on, anyone who supports a business to make a claim must be registered with HMRC, they must have their details logged within the HMRC database, and effectively, they must take some responsibility for the claims that they make on behalf of a client.

This is a major change and should remove many suspect players from the marketplace.

Unscrupulous agents who have been pushing the legislation beyond breaking point, finding and submitting claims that they know to be beyond the government’s R&D remit will no longer be able to operate with the level of impunity they have up until now.

Why you should choose a regulated accountancy practice to help with your R&D claim

Historically, there has been a view taken by some businesses that specialist R&D tax credit firms are better placed to support a claim than more traditional accounting practices.

This is not true.

What’s more, regulated accountancy practices like Leonherman – who are regulated by the Institute of Chartered Accountants in England and Wales – are used to operating under regulatory scrutiny and with the levels of accountability that will now be found in the R&D tax credit market.

We always accept responsibility for our advisory work and have no choice but to put our name on any records that we submit to HMRC on behalf of our clients. The same cannot be said for a lot of the agents found in the R&D tax credits market.

In short, if you need to submit an R&D claim, you can leverage our experience of working in a regulated environment and rest assured that your R&D claim will go forward with confidence and responsibility.

How will Leonherman help to reduce the risk of your business having an R&D claim challenged or rejected?

Having an R&D claim reviewed or challenged can create significant costs and delay for a business. In our experience, this is far more likely if your claim has been compiled by questionable R&D expert.

In contrast, here’s how Leonherman can help you to reduce the risk to your business:

1. We will meet with you to help you better understand what work aspects can and cannot be considered towards a claim for R&D Tax Credits;

2. We will ensure the work that you will be putting forward for a claim is structured accordingly into the relevant process elements of R&D, to ensure that the maximum potential claim value can be harnessed;

3. We will ensure your research is well documented in a manner that supports a review of the research by HMRC should they deem it necessary;

4. We will help you to engage legal advice, to ensure contracts with third parties, be they clients or subcontractors, enshrine the ownership of the research with you, the claimant;

5. As a regulated, independent specialist, we will compile your R&D claim, report and HMRC AIF, maximise the claim value and ensure key HMRC tests for any valid claim are met.

Contact Leonherman’s R&D Tax Relief Experts

Leonherman have a significant understanding of the R&D tax credits scheme.

Crucially, we are an independent specialist, regulated by the ICAEW, and we are used to operating under regulatory scrutiny. We have always been expected to put our name alongside our advisory work.

If you’re considering an innovation project in your business, and you’re unsure as to whether you will have a valid R&D claim or not, get in touch with us without delay to arrange an initial, free consultation with our R&D experts.

We will help you better understand what constitutes a valid claim for R&D tax credits with HMRC. We will let you know if we think you will have a valid claim, and importantly, we will tell you if we think you don’t have a valid claim and whether we feel it’s worth your time putting forward a claim or not.

What’s more, our wider financial advisory team will support you beyond the initial R&D claim, helping you to make R&D a key driver of your business value and growth strategy moving forward.

Book a free consultation with an R&D tax specialist here, call us on 0161 249 5040, or email: partners@leonherman.co.uk.

Important Disclaimer

This material is published for client information. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. No responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by Leonherman.

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