Tackling abuse: Changes coming to the R&D tax relief regime

Draft legislation was released in July 2022, detailing the changes to the R&D tax relief regime that are due to take effect from 1 April 2023. Tackling abuse of the system will be the focus of the new requirements.

The changes to be introduced to the R&D claims submission process include requirements that:

1. claims be made digitally;
2. the categories of qualifying expenditure incurred be disclosed, and brief details provided of the R&D activities;
3. claims be endorsed by a named senior company officer;
4. the company inform HMRC in advance of its intention to make a claim within six months of the end of the period to which the claim relates; and
5. the details of any agent who has advised the company in making the claim be provided.

The most significant change is point 4, which applies to new claimants and those claimants that have not made a claim in the previous three accounting periods. They will need to notify HMRC of their intention to make a claim. This point could easily be missed, especially by new claimants that may not have an awareness of R&D tax relief until after the deadline has passed. 

 The key will be for those companies to engage specialist advisers as soon as they begin to develop new or existing products, processes, software, or other technologies, with the aim of determining whether the activities qualify and hence whether a notification should be made. We have made – and continue to make – representations to HMRC highlighting the impact this will have on genuine claimants, particularly start-up ventures that are more focused on innovation than on compliance filing requirements.

There are uncertainties about the timing of the notification in some circumstances. Where a company draws up accounts for an 18-month period ending 30 September 2024, for corporation tax purposes this is split into two return periods, comprising the 12 months to 31 March 2024 and the six months to 30 September 2024.

It appears, therefore, that the company would need to make two notifications to HMRC. It is hoped that further clarification on the relevant deadlines in this scenario will be given before the notification requirement takes effect.

As regards the requirement to make claims digitally, in general claims are already submitted digitally as part of the tax return (form CT600). We expect that the supplementary pages in form CT600L will be amended, to enable the necessary disclosure to be made regarding the categories of qualifying expenditure incurred and the nature of the R&D activities undertaken.

The main aim of the new requirements is to tackle abuse. The requirement for claims to be endorsed by a named senior company officer is intended to encourage better behaviours, by ensuring a senior officer of the company takes responsibility for the content of the claim. Meanwhile, the requirement to provide details of any agent that has advised the company should help HMRC to assess the quality of advisers and identify higher risk claims. Where any trends for poor quality claims become apparent, HMRC can consider its approach.

We fully expect that these new measures, allied with the allocation of greater HMRC resources to R&D tax relief compliance, will lead to an increase in compliance checks. That could delay the processing of claims and develop into detailed enquiries. To avoid this, you should consider going beyond providing brief details of your R&D activities, and engage an appropriate specialist to help with R&D claims.

If you would like to discuss any of these proposed changes, please speak to your usual contact in the specialist Innovation Reliefs group at RSM, or to Darren Griffin.