R&D Tax Relief: New Requirements from August 2023

R&D Tax Relief: New Requirements from August 2023

Companies will soon have to submit much more information about their development work to access R&D Tax Relief. Here’s what you need to know.

The process of claiming R&D Tax Relief is about to become much more challenging and time-consuming.

From 8 August 2023, all applicants will need to submit detailed information about the projects and expenditures in their submission, including in-depth descriptions of your development work, a complete list of costs broken out by category, and the precise amount you’ve invested in indirect qualifying activities. 

These requirements were originally scheduled to give live on 1 August, but on 18 July the government announced it was pushing them back a week, likely to give claimants more time to prepare.

Additional information form

You will have to provide this detail – far more than you may have needed to or thought to before – through the new ‘additional information form’. Failure to do this will result in an automatic rejection of your claim. You must file this form before your Corporation Tax Return, an incentive to consider their R&D Tax claim early in your financial reporting process. 

Part of a wider set of reforms designed to reduce fraud, these requirements will make preparing a claim much more time-consuming for businesses that are not working with an experienced R&D Tax consultant. They will also make it easier for unassisted claimants to damage their reputation with HMRC by omitting crucial detail or burying salient aspects of their development work under unnecessary minutia. 

As a result, we expect many legitimate claimants will end up facing lengthy enquiries, potentially reducing their relief and delaying it by anywhere from four months to a couple of years.

Below, I have outlined the new information you will have to provide HMRC alongside your next submission. If you have any questions or would like GrantTree R&D Tax Relief experts to help you navigate these changes, protect your reputation with HMRC, and dramatically reduce your chances of facing an enquiry, just get in touch.

Technical information

First off, you will need to tell HMRC how many projects you are claiming for.

You will also need to provide a detailed description of some or all of the projects in your claim. 

Your descriptions must be separated into answers to the following six questions:

  1. What is the main field of science or technology?
  2. What was the baseline level of science or technology that you planned to advance?
  3. What advance in that scientific or technical knowledge did you aim to achieve?
  4. What scientific or technological uncertainties did you face?
  5. How did your project seek to overcome these uncertainties?
  6. Which scheme you’re applying to, and how much you’re looking to claim

These questions closely mirror the scheme’s criteria for qualifying development work, making it much easier for inspectors to judge projects’ eligibility for tax relief.

How many projects do I need to describe?

Thankfully, you don’t necessarily need to describe all of your projects. 

The number of projects you need to describe depends on how many projects you are claiming for. 

This table explains how many projects you need to describe in your technical report. 

Projects Conducted Projects to Describe
1-3
All of your projects
4-10
At least 3, and enough to describe the projects that account for at least 50% of your total expenditure
>10
At least 3, and enough to describe the projects that account for at least 50% of your total expenditure. If the qualifying expenditure is split across a number of smaller projects, you only need to describe the latest 10

Financial information

Qualifying expenditure

You will need to provide a detailed account of your qualifying expenditure, broken out by the nine categories of qualifying costs. 

The nine categories are:

  1. Staff costs
  2. Externally provided workers
  3. Subcontractor costs 
  4. Software
  5. Consumable items 
  6. Payments to participants of a clinical trial 
  7. Data licence costs 
  8. Contributions to independent R&D costs 
  9. Cloud computing services, including storage*

      *These costs become eligible in accounting periods taking place on or after 1 April 2023 

The costs you are able to claim for differ depending on whether you are applying for SME R&D Tax Relief or the Research and Development Expenditure Credit (RDEC). 

Having identified all of the projects you’re seeking to claim relief during the period, you’ll also be required to identify the amount of qualifying expenditure that relates to each specific project.

You can read more about this in our detailed guide to R&D Tax Relief.

Qualifying indirect activities

You will also need to tell HMRC how much of your expenditure on each project went to qualifying indirect activities

Indirect activities are tasks that support your development work without directly contributing to a scientific or technological advance. Project management and analysis, for example. 

Expenditure on indirect activities cannot include spending on cloud computing or data licensing.

Company information

Lastly, you will also need to provide a series of specifics about your company. This section will be easiest to complete; the information will be familiar to anyone that has worked on company accounts.

  • Your company’s United Taxpayer Reference (UTR) number
  • Your employer PAYE reference number 
  • Your VAT registration number
  • Your business type, for example, by providing its current SIC code 
  • Contact details for the main senior person at your company responsible for your R&D claim
  • Contact details for any agent that helped you prepare your claim, for example, your R&D Tax Relief specialist

For a while, we’ve believed that HMRC has been targeting enquiries based on specific SIC codes. The requirement to provide the SIC code, or some similar classifier, adds weight to this theory.

Clearly, HMRC is asking for information about external agents because it wants to combat the growing trend of rogue consultancies that artificially inflate their clients’ claims to generate larger fees.

The inclusion of an agent section in the additional information form makes it even more important that companies choose the right R&D Tax provider to prepare their claim and represent their development work to HMRC. Even if your claim is sound, being associated with the wrong provider is likely to increase your chances of enquiry. 

Extra information - Large business customers

If you are a large business customer, as defined by the company size test, you are able to provide HMRC with information about your development work beyond what’s required in the additional information form. 

Doing this can reduce your chance of enquiry and may mean that your claim is paid out faster.  

The information you can provide includes:

  • A brief overview of your company and trade
  • The name, qualifications and professional experience of the competent professionals that led your R&D 
  • The methodologies you used during experimentation

You can share this information in an email or online with your corporate tax return.

Where might companies fall down?

There are two areas I think companies will find particularly challenging. 

The first is the technical report, especially questions two through five. 

Scientific and technological baselines, advances and uncertainties may sound familiar to people involved in research and development. However, these terms have strict and unique definitions in the context of the R&D Tax Relief scheme, and I imagine companies will struggle to use them accurately. 

The second is the need to identify and record expenditures related to indirect activities

There’s a fine line between direct and indirect activities, as there is between indirect activity and routine work, which is not eligible for relief. In my experience, companies often struggle to navigate these subtle differences, but they will need to try if they want to claim their full funding entitlement while remaining compliant.

Don’t get caught out. Work with GrantTree.

I hope this rundown of the new reporting requirements has given you a good sense of the information you’ll need to provide HMRC alongside your next claim. 

If you want to make sure you’re satisfying these requirements, steering well clear of HMRC’s compliance clampdown, and claiming your full funding entitlement, it may be time to work with an experienced consultant like GrantTree.

Our R&D Tax consultants have filed over 2,000 successful claims, unlocking more than £350 million for our clients. 

Our experienced team can protect your reputation from HMRC and ensure you are securing your full legal entitlement of relief, all while saving you time you can use to focus on the things that are most important to your business. 

To speak to one of our R&D Tax Relief experts, just get in touch.

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