Research & Development Claims – Important changes from 8 August 2023
What’s changing? From 8 August 2023 onwards, there are new filing requirements for all R&D relief claims submitted to HMRC. The main change is that an ‘additional information form’ now needs to be completed. In addition, new advance notification requirements... Read more
From 8 August 2023 onwards, there are new filing requirements for all R&D relief claims submitted to HMRC. The main change is that an ‘additional information form’ now needs to be completed.
In addition, new advance notification requirements have been introduced for accounting periods beginning on or after 1 April 2023.
Additional information form – R&D relief claims submitted after 7 August 2023
For all R&D tax relief or expenditure credit claims submitted from 8 August onwards, an ‘additional information form’ will need to be submitted online before the submission of the company’s tax return. If this is not done, HMRC will remove the R&D tax relief claim from the return. The form can be completed by a representative of the company or (usually) by an agent or accountant acting on behalf of the company.
For long accounting periods which require two company tax returns, a separate ‘additional information form’ will need to be submitted for each of these tax periods.
The form can be part-prepared and saved in a draft state but it has to be submitted within 21 days or the information on it is lost.
Information to be included on the form
The form will need to include the following standard information:
- the company’s 10-digit UTR number
- the company’s PAYE reference number
- the VAT registration number
- business type (for instance SIC code)
It will also need to include the following information specific to the R&D relief claim:
- contact details of the main senior internal R&D contact in the company who is responsible for the R&D claim
- contact details of any agent involved in the R&D claim
- the accounting period start and end date
- details of the qualifying R&D expenditure (see below)
- details of the R&D projects (see below)
Qualifying R&D expenditure details
If companies meet the relevant conditions, they can claim for R&D relief under either the SME (small and medium-sized enterprise) scheme or the RDEC (R&D expenditure credit) scheme or both.
- SME tax relief claims
Qualifying expenditure includes qualifying staff, subcontractor and externally provided worker costs, expenditure on consumable items and R&D-related software, plus (for accounting periods beginning on or after 1 April 2023) cloud computing costs, including storage, and data licence costs.
- RDEC tax relief claims
Qualifying expenditure includes qualifying staff, subcontractor and externally provided worker costs, contributions to independent R&D, expenditure on consumable items and R&D-related software, plus (for accounting periods beginning on or after 1 April 2023) cloud computing costs, including storage, and data licence costs.
- Qualifying indirect activities
These are activities which are part of a R&D project but which do not directly contribute to resolving the scientific or technological uncertainty. Expenditure on qualifying indirect activities can only be claimed (under either SME or RDEC) if it relates to information services or feasibility studies relating to the R&D, or indirect support such as maintenance, administration and ancillary activities, or R&D-specific training, university research or research related to R&D testing and data collection.
The information form should disclose the number of projects which are included in the R&D relief claim, and detailed project descriptions need to be provided. The amount of descriptions required depends on the number of R&D projects claimed, as follows:
- For 1 to 3 qualifying projects, all of the projects need to be described, covering 100% of the qualifying expenditure
- For 4 to 10 qualifying projects, projects will need to be described that account for at least 50% of the expenditure, with a minimum of 3 projects described.
- For 11 to 100 or more projects, projects will need to be described that account for at least 50% of the total expenditure, with a minimum of 3 projects described. If the qualifying expenditure is split across multiple smaller projects, the 10 largest projects should be described.
The descriptions should cover the following areas:
- What is the main field of science or technology
- What was the baseline level of science or technology that the company planned to advance
- What advance in that scientific or technological knowledge did the company aim to achieve
- The scientific or technological uncertainties that the company faced
- How did the project seek to overcome these uncertainties
- The type of R&D tax relief claimed for the project and the amount of qualifying expenditure
There are specific procedures for companies which are classed as ‘large business customers’ by HMRC.
In addition to the ‘additional information form’ which is submitted online beforehand, the tax return itself can be accompanied by a supporting R&D report. It was already common practice for R&D reports to be submitted with company tax returns, and it is now recommended that R&D reports continue to be filed under the new system. This is because it is likely that the R&D report will include extra information or detail not included within the ‘additional information form’, as the text boxes in the form are limited in size and some of the information there may therefore have to be summarised.
Advance notification requirements
For accounting periods beginning on or after 1 April 2023, new R&D advance notification requirements apply. The rules relating to this depend upon whether or not the company has previously made a R&D tax relief claim or expenditure credit claim and, if so, how long ago.
If a claim notification form is required, it has to be submitted online within a specific timeframe, as noted below. The claim notification form needs to provide standard company information and a summary of the high-level planned R&D activities.
Companies which are making a claim for the first time
A claim notification form needs to be completed and submitted online. The form has to be submitted either within the accounting period (ie not before the beginning of the period or before the company starts trading) or up to 6 months after the end of the period. If the ‘period of account’ (ie the period of the company’s statutory financial statements) is longer than 12 months and is covered by two tax periods, the claim notification window is extended and the deadline is 6 months after the end of the second of these tax periods.
Companies which have previously made R&D claims
If a company wants to make a R&D tax relief claim or expenditure credit claim for a period, it will not need to submit a claim notification form if it is covered by the 3-year exemption. This exemption applies if the company has made a R&D tax relief claim for an earlier period at any point during the 3 years ending on the date on which the claim notification window closes.
For example, if a company wishes to make a R&D relief claim for the year ending 31 March 2024, the claim notification window for that period closes on 30 September 2024. Therefore the company will not need to submit a claim notification form if it has made a R&D tax relief claim at any point in the 3 years from 1 October 2021 to 30 September 2024.
If the company wants to make a R&D relief claim for an accounting period (ie a tax period) and it is not covered by the 3-year exemption (ie because no R&D relief claim was made during the 3 years ending on the date of the end of the claim notification window), the company will need to submit a claim notification form, following the same procedure as that outlined above for companies claiming for the first time. (The only exception to this is if the company’s statutory financial statements represent a long ‘period of account’ and a claim notification has already been made within the correct timescale for the other tax period that is part of the same ‘period of account’).
What happens if a claim notification form is not submitted when required?
If a tax return has been submitted for a period for which a claim notification was required but not submitted, HMRC will remove the R&D tax relief from the company tax return.
Recent changes in R&D rates
With effect from 1 April 2023, the R&D rates changed for expenditure from that date onwards.
- For SME scheme claims, the extra uplift deduction changed from 130% to 86%. At the same time the rate applicable for tax credit changed from 14.5% to 10% in most cases.
- For RDEC scheme claims, the expenditure credit percentage increased from 13% to 20%.
For further advice on R&D tax relief claims
Tax Manager (Corporate)
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