Another turbulent month for R&D tax as half of the R&D claims submitted in the last month face rejection from HMRC

It has been one month since the introduction of the Additional Information Form (“AIF”) – A compulsory requirement that needs to be submitted by companies claiming R&D tax relief [see details below]. However, earlier this week, HMRC said that nearly half of the R&D claims submitted between 8 August 2023 – 3 September 2023 did not have the Additional Information Form included and are therefore invalid. HMRC is writing to companies and agents who may be affected to remind them of these new requirements which, if not addressed appropriately, will likely result in the R&D claims being rejected.

Over the past few months, there has been significant coverage around the new AIF requirements (despite its delayed introduction as a result of software issues faced by HMRC). Given 90% of R&D claims involve an agent in some capacity, it is a concern that these new requirements have been missed or that the general awareness of the submission protocol is lacking. The AIF needs to be submitted before the company’s Corporation Tax Return is submitted. If a company fails to do this, HMRC will write to the company and/or agent to confirm that the claim for R&D tax relief has been removed from the Company Tax Return.

Whilst it is surprising that so many claims submitted since 8 August 2023 have failed to adhere to the new requirements, there remain concerns that the process for making R&D tax relief claims is becoming more onerous and putting off legitimate companies from making claims. Alongside this, there is an increasingly strict, volume-compliance approach from HMRC towards claims that are investigated by compliance checks. In July 2023, the Chartered Institute of Taxation (“CIOT”) wrote to HMRC to raise its concerns about HMRC’s lack of collaboration, misinterpretations of R&D tax legislation, readiness to reject claims, and use of penalties against taxpayers. HMRC responded to CIOT in late August 2023 acknowledging the points made were valid, but that its approach continues in its attempts to combat error and fraud that is becoming increasingly prominent in R&D claims.

It has been a busy summer for R&D tax: SME’s have had to grapple with the introduction of reduced rates of R&D tax relief combined with increased corporation tax rates; HMRC published damning statistics about estimated levels of error and fraud within SME R&D claims; The roll-out of the new AIF process has been plagued with implementation issues; and Draft legislation about merging the SME and RDEC incentives under a singular scheme has prompted more questions than answers from stakeholders. A period of consistency and reassurance for R&D claimants is long overdue, at least until the Autumn Budget on 22 November 2023.

To complete the AIF, a company claiming R&D tax relief will need the following details:

Project Disclosures

In an accounting period, if you’re claiming:

• for 1 to 3 projects, you need to describe all the projects you’re claiming for that cover 100% of the qualifying expenditure
• for 4 to 10 projects, you need to describe those projects that account for at least 50% of the total expenditure, with a minimum of 3 projects described
• for 11 to 100 (or more) projects, you need to describe those projects that account for at least 50% of the total expenditure, with a minimum of 3 projects described — if the qualifying expenditure is split across multiple smaller projects, describe the 10 with the most qualifying expenditure.

For each project written up, information must be provided on the following:

• The start & end date of the project
• The main field of science/technology
• The baseline level of science/technology the company planned to advance
• What the advance in science/technology the company aimed to achieve
• The scientific/technological uncertainties faced
• How the projects sought to overcome these uncertainties

Project Expenditure:
For each project, you must provide:

• Confirmation as to whether you are claiming SME and/or RDEC tax relief
• The expenditure totals relating to staff costs, subcontractor costs, externally provided worker (“EPW”) costs, consumables costs and software costs – where relevant
• The expenditure incurred on qualifying indirect activities (“QIA’s”) – where relevant

Administrative Information:
Including the following:

• The company’s Unique Taxpayer Reference (“UTR”) number, employer’s PAYE reference number, VAT registration number, and companies house SIC code.
• The contact details of the main senior internal R&D contact at the company responsible for the claim
• The contact details of any agent/third party involved in the R&D claim.

Via a new Government Gateway link that can be submitted by:

• a representative of the company — you will need the Government Gateway user ID and password you used when you registered for Corporation Tax, if you do not have a user ID, you can create one the first time you sign in
• an agent acting on behalf of the company — you will need the Government Gateway user ID and password you used when you registered for the agent services account, if you do not have a user ID, you can create one the first time you sign in.

We are pleased to continue to support companies with their R&D claims and if you would like to speak with one of our specialist advisers, please do get in touch.