Since its introduction in 2000, Research & Development (R&D) tax relief has been a positive force for economic growth and employment by stimulating UK companies to invest in innovation. In September, HMRC reported an estimated £6.6bn was claimed through the scheme by UK companies during the 2020-21 tax year.
As one of the UK's leading specialist advisers on R&D tax relief, Visiativ has developed a wealth of experience supporting innovative companies when making a claim. We have operated in the UK market for over 15 years, initially as Jumpstart then as ABGI-UK and, more recently, rebranding to our group parent name, Visiativ. Over that time, we have delivered a consistently focused service to clients ensuring they are able to maximise tax relief on their investment in R&D.
While the R&D tax relief scheme has been a great success in promoting innovation, there are ongoing concerns about some applicants making either exaggerated or entirely fraudulent claims. To help address this, HMRC has announced some major changes in how companies must go about applying for this incentive.
From August, those wishing to apply for R&D tax relief will face a number of new requirements, irrespective of the tax year, when making a claim. This will include a higher level of detail required in reporting R&D projects and their accompanying qualifying expenditure.
These changes will cover three key areas: project reporting; qualifying expenditure reporting; and listing of company and contact details when making a claim. I have set out some further detail of these specific areas below and the potential impact this could have for companies when making tax relief claims for R&D activity.
From 8th August, businesses with up to three projects are required to describe all projects covering 100% of their qualifying expenditure. For those with four to 10 projects, a minimum of three, accounting for at least 50% of total expenditure, will need to be described when they are submitting a claim. Companies making claims for 11 or more projects will need to describe their 10 largest projects, accounting for at least 50% of total expenditure.
When it comes to project reporting, companies will need to provide specific responses to six prescribed and detailed technical questions. These include a requirement to set out the main field of science or technology where a company has invested in R&D activity; the baseline level of science or technology that it planned to advance; and the scientific or technological knowledge that it aimed to advance through its R&D project.
Applicants must also set out the scientific or technological uncertainties that they were facing at the start of an R&D project; how their activities sought to overcome these uncertainties; and details about the specific tax relief scheme they are applying for including the amount for the claim.
In terms of reporting qualifying expenditure, from August this must now be broken down by project with the amount of qualifying indirect activity also noted. Qualifying expenditure can include costs for cloud computing, data licences, externally provided workers, payments to participants of a clinical trial, software, staff, and subcontractor costs.
Along with information about the accounting period start and end dates, applicant companies will also need to provide details about the main senior internal contact in the company who is responsible for the R&D claim as well as any agents that are associated with it. A company will need to ensure that its Unique Taxpayer Reference (UTR) matches the one used in its company tax return when making a claim. It will also be required to share a number of other key details including its employer PAYE reference number; VAT registration number; and the nature of its business in line with the options set out in the current Standard Industrial Classification (SIC) code.
These changes are important to innovation-focused businesses as they increase the level of complexity and could prove a challenge to companies whose accountants lack R&D expertise or technical knowledge. This also comes amid a shift to a new online HMRC portal which will allow only a 21-day completion timeframe for an R&D tax relief application once the submission is initiated.
Companies that are not suitably prepared for these changes run the risk of inaccurately capturing and presenting the required information. This could result in an incomplete or incorrect submission and impact the level of relief they are able to secure.
R&D tax relief continues to be a great incentive which supports UK companies to be truly world-class by helping offset some of their investment into innovation. HMRC's aim to weed out misuse of the scheme is very welcome, but this will create issues for some companies and their accountants who manage the application process.
Visiativ has a highly experienced team that can help you manage these new requirements and ensure your company is able to secure your full entitlement of tax relief.
To find out how we can help, please do get in touch on 0131 297 0262 or douglas.reid@visiativ.co.uk
