In Spring 2021, the government announced a review of the R&D tax relief regime with the objective of ensuring the UK remains a competitive location for cutting edge research.
In November 2021, the government outlined the detail on a list of measures to reform the R&D tax relief system. These measures included the expansion of qualifying expenditures to cover data and certain cloud computing costs, as well as restricting R&D relief to activity carried out in the UK.
Further, HMRC have been tackling and are continuing to tackle fraudulent claims which have led to delays for many innocent claims and consequently, some major changes have been introduced to the R&D tax regime.
Some of the main changes to the regime which have been announced in respect of accounting periods beginning 1 April 2023 are as follows:
We have put together a summary of top tips for clients and their advisers when preparing R&D claims, to ensure the claims are as robust as possible to minimise the risk of a HMRC challenge.
Due to constant changes in the legislation and the ever-increasing complexity of the R&D landscape, it is more important than ever to use specialists with experience of preparing R&D claims.
A company does not have to set the world on fire to claim R&D relief and it does not have to be in the tech sector to qualify. In fact, there is no restriction in respect of sectors and industry. What is important is to demonstrate that a company is aiming to achieve technological advancements by aiming to resolve technological uncertainties.
The legislation and HMRC guidelines are not sector or industry specific and so what constitutes technological advancements in a particular sector for the purposes of R&D tax relief can sometimes be open to interpretation. It is important however that the criteria for the relief is closely analysed, as there cannot be any R&D in the absence of any technological uncertainties.
With HMRC scrutinising R&D claims more closely, it is more important than ever to include comprehensive details of the project(s) and the qualifying costs in the form of a detailed R&D report, in order to minimise the risk of HMRC challenging claims. Again, it is important that specialist R&D advice is sought in this respect.
There is an exhaustive list of qualifying costs set out in the legislation. It is important to ensure that any costs being claimed fit into one of the relevant categories of qualifying expenditure.
A company can make an R&D claim within 2 years following the relevant accounting year end. It is therefore vital that any previous period(s) are not missed as long as within the time limit, especially as this can result in a cash repayment from HMRC in a lot of cases.
There can be restriction for SME companies that have received grant funding in terms of the quantum of relief they can claim. As such, whether a company has received grant funding should be one of the most questions that should be asked when preparing an R&D claim.
Should you require assistance in making a claim to HMRC, or help in understanding whether your companies activity is qualifying for R&D purposes, then please get in touch.
