What accountants should know about recent changes to R&D tax relief

Vicki Morrall warns accountants dealing with R&D tax credits must be confident they can prepare fully compliant and defendable claims.

For those accountants that prepare R&D tax credit claims, it will not have escaped notice that the schemes have been in the spotlight over recent months. Increased scrutiny has seen HMRC opening a significant number of enquiries into R&D tax credit claims. This increased policing has, rightly, caused concerns for many accountants. They are having to deal with enquiries for the first time, and it can be demanding.

This is happening at the same time as new requirements were brought in around the claim process that came into effect in April 2023. Accountants will need to be aware of these changes to ensure due care and attention is given to your clients or, if you are in industry, to your internal claims process.

What are the changes to R&D tax relief?

In April 2023, a number of process or administrative changes came into effect for anyone claiming R&D tax relief. 

These include:

• The requirement for a Technical and Financial Report to accompany any R&D tax relief claim. This has been best practice for many years, but not a requirement before now. These reports are now compulsory.
• The requirement for the claimant to notify HMRC of their intent to claim within six months of their Accounting Period End (APE), using a new digital form. This is required for all claims for accounting periods starting on or after 1 April 2023, except where the company has previously claimed R&D within any of the three previous calendar years, or the R&D claim is submitted within six months of the period end.
• Claims must be endorsed by a named senior official from the company, with their contact details provided.
• Any agent who advised the business on compiling the claim documentation must be named.
• The requirement for an ‘Additional Information form’ to be completed digitally, before the filing of the CT600L. This is required from 1 August 2023.

In addition to these administrative changes, further changes within the scheme have come into effect and these include:

• The SME R&D tax relief scheme sees the enhanced rate move from 130% to 85% and the cash credit reduce from 14.5% to 10%. The RDEC rate however increases from 13% to 20%
• The extension of the R&D definition to include pure maths as a qualifying activity.
• The inclusion of data licences and cloud computing as qualifying costs.

New support is available to a newly defined group of R&D intensive industries. This will be in the form of an enhanced tax credit available to loss-making businesses whose R&D expenditure consists of at least 40% of total expenditure. Qualifying companies will be able to surrender losses at a rate of 14.5% for qualifying R&D expenditure instead of the 10% credit rate for companies claiming under the existing SME scheme.

How will these changes impact accountants?

Of course it is essential that all accountants are aware of all these changes to ensure they advise clients or their businesses appropriately. Perhaps the most significant impact to accountants will be the new requirement for the Additional Information form to accompany all filed claims. This is now confirmed and legislated, but it has been left open to allow the content to be amended. This form asks questions about both the company claiming and also its R&D projects.

A number of our accounting partners I have spoken to over recent weeks are concerned about the administrative burden of this Additional Information form and the resulting duplication of effort and information it will entail.

We expect this digital form, required from August, will require in excess of 40 fields to be completed for a single project, single scheme claim. These fields will cover the simple administrative areas such as UTR, PAYE ref, SIC code, contact details and agent details. However there will also be further detail and fields concerning technical compliance and expenditure compliance for each of the projects undertaken. Multiple project claims or hybrid claims (across the RDEC and SME schemes) will demand the same information but multiple times over.

Accountants also need to be aware of the increased focus on R&D compliance from HMRC. Enquiries are time-consuming and can be difficult to defend. Accountants need to be aware of the risks associated with filing an R&D tax relief claim for their clients. HMRC is demanding robust compliance and evidence of the baseline for projects. This requires a depth of technical knowledge, an understanding of the legislation and sector-specific proficiency.

Recommendations for accountancy teams

Accountancy teams dealing with R&D tax credits need to be confident in their ability to prepare fully compliant and defendable claims. 

For any claims filed it is crucial to explain the technological advance and evidence the baseline or state of knowledge at the outset of any project. The advance must be in overall knowledge or capability in a field of science or technology. It can’t just be that the company’s own knowledge has increased. The baseline needs to determine what was publicly available at the start of a project in order to prove the technological advancement.

If an enquiry is opened, the accountancy team should only try and defend that claim if they’re confident in the compliance and have the required depth of technical understanding. The first reply to HMRC following the opening of an enquiry is critically important, and specialist support should be sought if you are uncertain of how to respond.

The R&D tax relief landscape is continuing to change, and it is likely that there will be further amendments and revised guidance over forthcoming months. Accountancy teams will need to keep up to date with the nuances of the claim process and the direction of travel of HMRC around Enquiries and One-to-Many compliance checks. This will enable them to advise their clients appropriately and get in specialist advice where necessary.

Many who provide their own R&D services have invested heavily in their internal teams. They have expanded their technical resource in order to deliver technically compliant claims. For others their risk appetite has reduced, and they choose to partner with a specialist, recognised provider instead.

Whatever the chosen route, the days of filing summarised claims with limited understanding of the requirements are over.

Vicki Morrall, Accounting Partner Director at R&D tax credit specialists Source Advisors, has vast accounting experience and commercial expertise. She co-founded R&D tax consultancy Luvo Financial in 2015. In 2021, Source Advisors acquired Luvo, which allowed Vicki access to additional services for her clients and partners.

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