How will the R&D tax relief claim process be changing from August 2023?

How will the R&D tax relief claim process be changing from August 2023?

There are many changes happening to the R&D tax regime, but one of the most significant is a new compulsory Additional Information Form that is being introduced.

From 1 August 23 ALL R&D tax relief claims will require a compulsory Additional Information Form (AIF). This AIF needs more detailed information and must be submitted digitally BEFORE the company tax return containing the R&D claim. HMRC WILL AUTOMATICALLY REJECT CLAIMS WITHOUT AN AIF.

In this blog, we cover the changes and what is now needed when submitting a claim and what to do next to prepare for these changes.

What are the new changes to research and development tax claims?

Every R&D tax relief claim submitted on or after 1 August 2023 must be accompanied by an Additional Information Form (AIF).

What is the new additional information form?

It is a new online form being introduced by HMRC for all R&D tax relief claims on or after the 1st August.

This form is a way for HMRC to get all your information in one place when you submit R&D claims.

This form contains some basic information but there are some new additional areas of information that now are required. The additional information needed focuses on more detailed descriptions of the R&D projects claimed and depends upon the amount of the claim each project represents. 

So, more than ever it is important to correctly identify qualifying projects and the boundaries of R&D. The key is being clear and concise in describing how the project meets the R&D criteria.

Additional information you may need to provide for an R&D tax claim

Information required in the new Additional Form:

• 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
• 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 code as their business has grown and diversified. This could pose a potential risk to the claim being rejected by HMRC. Therefore, our advice is to undertake a review of and additions to SIC codes that best describes the technical travel of the company - and therefore its R&D.

Here is an example:

Say your company originally manufactured 13940 Manufacture of cordage, rope, twine and netting and this part of the business is commercially stable. Over time you started research and development in 13960 Manufacture of other technical and industrial textiles but the SIC codes have not been updated to include this, then your SIC code  13940 doesn't reflect your R&D activity. It is important that your SIC code matches the area in which you are submitting an R&D claim.

Qualifying expenditure

The AIF requires details of qualifying expenditures incurred. Companies with a number of projects can provide details about a sample of the projects. This 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 may not require a large enough sample of R&D projects.

All of this requires additional work and additional record-keeping by companies to submit R&D claims.

Submitting the AIF

The form needs to be submitted within 28 days of starting to fill it out, or it will be deleted. Therefore your advisor won’t be able to begin and complete the form until they have all the relevant information from you.

HMRC require the form to be submitted before the tax return. If it isn’t submitted before the tax return, they will write to you to confirm they’ve removed your claim from the return.

R&D information on the CT600 Company Tax Return

The new AIF doesn’t replace the CT600 company tax return sections that cover R&D tax relief. However, when completing the CT600, confirmation that additional information has been submitted can be made by putting an X in box 657 of the CT600 before submitting your CT600.

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

Can I avoid using the AIF?

Quite simply, the answer to this question is no you can't after the 1st August 2023. Claims submitted after 1st August that are not accompanied by an AIF won’t be valid and HMRC will remove the claim for R&D tax relief from the CT600.

However, claims submitted prior to 1st August can be submitted without the Additional Information Form.

What to do next

If you are processing your R&D claims through us, don’t worry! We’re currently talking to clients who are in the process of claiming R&D via our specialist R&D team and we will take care of all the details to ensure that all our claims comply with the new process and information needed. We are making this transition for our clients as easy as we possibly can.

Contact Haines Watts for Research and Development help and advice

If you are not currently claiming R&D, not processing your claims through the Haines Watts R&D tax team or you are not sure if your claims will be processed correctly, then talk to us today.

We are adapting our claims process to ensure that all the relevant information will be input on the Additional Information Form.

Haines Watts combine 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 our team in Liverpool, Wirral, or Chester.

Conclusion

Research and Development Tax Credits have a been an invaluable source of funding for forward thinking businesses for decades now. And whilst the changes could have an impact on your claims, it’s best to start planning ahead now, to minimise any potential issues.

Complying with the new requirements of the form will mean providing more information than ever to HMRC. Claims not accompanied by an AIF will not be valid and will be rejected by HMRC. It is important that you keep adequate records and that you use the right R&D tax advisors to submit claims on your behalf to ensure your claim isn't rejected and your company misses out on valuable tax relief.