The year has gone by in a flash and HMRC left some of its biggest morsels of news until late in the day, leaving many of us chewing over proposed changes with our mince pies.
Its consultation on the future of R&D tax relief was announced in March, but its suggestions bubbled away in the background for most of the year. Meanwhile, Budget announcements have brought about a number of planned changes too.
The sands are shifting rapidly so here’s a look back at the cards 2021 dealt businesses and their tax advisers.
A busy Budget
- Practical changes came early in the year in the spring Budget, which introduced a temporary three-year loss carry-back rule applying to accounting periods ending between 01/04/20 and 31/03/22. Prior to this change, companies with a tax loss could carry back that loss up to one year, if profitable in the prior year, and this would generate a tax refund. Extending it to three years means companies with a tax loss can go back three years to offset losses against prior profits.
This is obviously great news for R&D tax relief claimants in a loss position, but it will revert back to one year for periods ending after 31 March 2022.
- Then in April, the PAYE cap came into play for accounting periods beginning on or after April 2021. This caps the size of the repayable credit for loss-making companies to £20,000, plus three times the company’s PAYE and NIC deductions. It impacts claims where costs are predominantly attributed to subcontractors or externally provided workers.
Given most companies prepare accounts on a 12-month basis, we’ll only see the impact of this after March 2022.
HMRC allocates more resources
- HMRC employed 100 new case workers to increase the amount of proactive compliance work it is able to do.
- The number of R&D tax enquiries increased during the year as a result, with many of the enquiries revolving around whether the R&D is “subcontracted” and/or “subsidised”. More on this later.
Autumn Statement delivers two big changes
R&D tax relief changes made at the Budget are often relegated to the document published alongside it, and not featured in the announcements made in Parliament. Not this time!
- Rishi Sunak announced that data and cloud computing costs can be included in tax relief claims from April 2023.
- Also on the horizon from April 2023 is the exclusion of overseas subcontractor and externally provided worker costs from claims. This will refocus the reliefs towards innovation in the UK, and affect some sectors more than others – for example claims for R&D in software where the R&D activities can be delivered from anywhere in the world. You can find more information about those changes here.
HMRC delivers on its consultation
- Tax Administration and Maintenance Day, as it’s known, sounds very dry on paper, but Nov 30 actually marked the day on which HMRC released some very important documents and updates.
- Firstly, it published its outcome of a survey carried out with some claimants. It will come as no surprise that businesses are largely positive about the R&D tax relief scheme and it is considered hugely important to businesses.
- It also updated the wording of its CIRD manual in relation to its definition of “subsidies” and “subcontracted”. Its definition of “subsidies” is at odds with a judge’s decision from a tribunal case in October. In that case, the judge agreed with the appellant that the R&D work carried out had not been subsidised merely because the R&D was carried out to facilitate the delivery of a contract to particular customers. HMRC will not be appealing this decision but its views have not changed either.
- Meanwhile, the wording of “subcontracted” is now more akin to the wider stance HMRC are taking despite them also categorically saying this is not a change in interpretation.
The retention of IP by the claimant, a point that used to strengthen the argument that the R&D was not subcontracted, has been removed from the guidance. We can expect this debate to continue into 2022.
- HMRC also published the results of its spring consultation, bringing us full circle. Among the updates were how the two Autumn Statement announcements would be realised.
- But, crucially, it also offered more detail on how it will be clamping down on rogue claims and enhancing its compliance process.
Changes coming from April 2023 include:
- all claims must be submitted digitally
- claims must include all details of qualifying activities and costs
- claims must be signed off by a senior named officer at the claimant company as well as identify the submitting agent
- companies may also need to let HMRC know if they intend to make a claim
Companies and advisers have until 8 February 2022 to respond to these plans, alongside other changes disclosed in the report.
This year has certainly seen a greater amount of attention paid to the R&D tax relief arena, with a series of new measures lined up for 2022 and 2023.
Compliance is the watchword for 2022 as the government seeks to rid the sector of poor advisers and bogus claims — something that is badly needed.