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From 8 August 2023, HMRC will make it mandatory for all businesses claiming Research and Development (R&D) tax relief to submit an additional information form.
In this article, Nigel Holmes, Director of Tax at Catax (a Ryan company), explains why this change is needed and what businesses need to do to complete a claim.
Why is this change needed?
While this new step requires more administrative work, it is necessary so that HMRC can more easily identify fraud and error in claims. The additional information should help to sift out dishonest advisers who – until 8 August – haven’t included sufficient project information.
This change will also enable HMRC to have a better overall understanding of the claims being made. By having access to clear claim breakdowns and project justifications, rather than just total qualifying expenditure, HMRC can tackle claims with particular features or from specific sectors.
What additional information is needed?
Before the change, the provision of project information and cost analysis was recommended but optional. Now HMRC makes it mandatory for firms to include the following before submitting their Corporation Tax return:
- Project details – the scientific or technological advances, uncertainties, baseline, and activities undertaken.
- Project costs on a “per project” basis, including details of qualifying indirect activities.
Do all projects need to be described?
- Companies with 1 to 3 projects will need to detail all the projects that encompass 100% of the qualifying expenditure.
- Companies with 4 to 10 projects will need to describe the projects that account for at least 50% of the total expenditure, with a minimum of 3 projects outlined.
- Companies with 11 to 100 (or more) projects will need to describe those projects that represent at least 50% of the total expenditure. You’re also required to describe a minimum of 3 projects. If the qualifying expenditure is distributed across multiple smaller projects, the 10 with the most qualifying expenditure must be described.
What does a business need to describe?
HMRC have provided six key questions that need to be answered in the additional information form.
- 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?
- What were the scientific or technological uncertainties that the company faced?
- How did your project seek to overcome these uncertainties?
- Which tax relief is your business claiming for and what is the amount?
How should businesses prepare?
- Maintain robust recordkeeping: Businesses should be able to discuss all expenditure on a project-by-project basis rather than an overall collective. By having project information captured and readily available, firms will be able to complete the form more easily.
- Start the process early: The new claims process is more demanding and therefore more time consuming. Avoiding last-minute rush can prevent firms from making silly and costly mistakes. If your company is using an adviser to complete your R&D claims, consider the time needed to provide them with more information—more calls and email exchange may be needed.
- Consider speaking to an R&D specialist – Some advisers may have made only a handful of claims before, without an accompanying report or comprehensive narrative that’s now expected from HMRC. Consider outsourcing your R&D tax relief claims to a specialist adviser that’s experienced in delivering this level of information to HMRC and already set up to deliver this change.
Remember that regardless of when the accounting period was, all claims submitted on or after 8 August need to submit the additional information form to HMRC. Businesses should be careful not to confuse the 8 August deadline with any other R&D changes that are due to come in this year or next.