R&D - New compliance procedures

Research & Development (R&D) tax relief claims

New compliance procedures

There are many changes happening to the R&D tax regime, but one of the most significant is a new, compulsory Additional Information Form (AIF) that has been introduced. Below, Martin Gurney discusses the changes and how they may impact your business.

 

Historically, a company makes an R&D claim as part of its corporation tax return (form CT600). From 8 August 23, all R&D tax relief claims must be preceded by a compulsory AIF. This AIF provides more detailed information and must be submitted digitally, before any CT600 that contains an R&D claim. HMRC will automatically reject claims within a CT600 where an AIF has not been submitted in advance.

We have set out below more details on the AIF together with other practical guidance.

 

Information required in the AIF

• 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
• VAT registration number
• Employer PAYE reference number
• Unique Taxpayer Reference (UTR)
• Identification of business type, for example, your current SIC (Standard Industrial Classification) code [see below]
• A breakdown between direct and indirect qualifying R&D activities
• Some additional cost categories for accounting periods starting after 1st April 2023 (cloud computing, data licence costs)
• List the total amount of R&D projects in the financial year.
• A breakdown of the R&D costs allocated to each R&D project
• A standardised set of questions for each R&D project narrative:
  • What is the main field of science or technology?
  • What was the baseline level of science or technology that you planned to advance?
  • What advance in that scientific or technical knowledge did you aim to achieve?
  • What scientific or technological uncertainties did you face?
  • How did your project seek to overcome these uncertainties?

Check your SIC Code

With the AIF now asking for a SIC code, we are finding companies that have not updated their SIC codes as their business has grown and diversified. This could potentially create a risk of the claim being rejected by HMRC.

Our advice is to undertake a review of, and make any necessary changes/additions to, SIC codes so that these best describe the technical direction of the company and therefore its R&D work.

 

Qualifying expenditure

The AIF requires details of qualifying expenditure incurred.

Companies with a number of projects can provide details about a sample of the projects. This detail must cover a minimum of three projects accounting for at least 50% of the qualifying R&D expenditure.

The claim must include areas such as:

• the advancement in technology
• the baseline in technology
• the technological uncertainties and how they were overcome.

Some companies may struggle to allocate costs accurately across different projects or to provide a large enough sample of R&D projects.

The provision of all of this information requires additional work and additional record-keeping by companies in order to submit R&D claims.

 

Submitting the AIF

The AIF is completed online and needs to be submitted within 28 days of starting to fill it out, otherwise it will be automatically deleted by HMRC’s system.

Your advisor will therefore not be able to start or complete the form until they have all the relevant information from you.

HMRC requires the AIF to be submitted before the CT600. If it is not submitted before the CT600, HMRC will write to you to confirm that your claim has been removed from the CT600.

 

R&D information on the CT600

The new AIF does not replace the CT600 sections that cover R&D tax relief. However, when completing the CT600, confirmation that the AIF has been submitted can be made by putting an X in box 657 of the CT600 before submitting it.

You should not submit your CT600 including R&D activity until the AIF has been completed and submitted to HMRC.

 

Can I avoid using the AIF?

For claims submitted after 7 August 2023, the AIF is compulsory and R&D claims submitted without an advance AIF will not be valid.  HMRC will remove any claim for R&D tax relief from the CT600 in these circumstances.

 

What to do next

If you are processing your R&D claims through us, don’t worry!  We will take care of all the details to ensure that all our claims comply with the new process and information needed.

 

Conclusion

Research and Development Tax Relief has a been an invaluable source of funding for forward-thinking businesses for decades now.  These changes could have an impact on your R&D claims, therefore it is best to start planning ahead now to minimise any potential issues.

Complying with the requirements of the new form will mean providing more information than ever to HMRC. Claims not preceded by an AIF will not be valid and will be rejected by HMRC.  Rejected claims could lead to complications over tax liabilities and increased costs in resubmitting claims.

It is important that you keep adequate records and that you use the right R&D tax advisors to help maximise and submit claims on your behalf.

Haines Watts can help to ensure your that your claim is not rejected so that your company does not miss out on valuable tax relief.

 

How can Haines Watts help?

We advise clients with a broad range of tax and compliance matters throughout the South West region.

If you are not currently claiming R&D, not processing your R&D claims through Haines Watts or you are not sure if your claims will be processed correctly, then contact us.

Haines Watts combines R&D tax expertise, alongside our extensive experience of owner-managed businesses, to maximise R&D claims.

We know more about how other business and tax matters interrelate with R&D tax credits claims. For example, the business structure and remuneration of key directors can have a significant impact on the level of qualifying expenditure so you need an advisor who can look at the wider picture.

Our tax team can also advise on a wide range of additional tax reliefs that your business can take advantage of and not just R&D tax relief.

For more help and advice on changes to R&D tax relief claims, contact your usual Haines Watts contact.