Deadline looms for R&D tax relief changes
Imminent changes to the way research and development (R&D) tax relief claims must be handled could catch many businesses out, according to a specialist at top 10 accountancy firm Azets.
Francesca Hutcheson (pictured), tax advisory partner, believes the new administrative regulations, applicable from August 1, have been designed to weed out fraudulent R&D claims which cost the UK economy millions.
But she says that there is a danger that genuine claims from bona fide innovators could be lost or discouraged by the amount of information which will be needed to back up future claims.
As part of its campaign to identify malpractice, HM Revenue & Customs (HMRC) says that from August 1 businesses submitting R&D tax relief claims will need to provide much more information than previously.
Allowable only in a digital format, this will now include additional information forms breaking the costs down across qualifying categories, listing projects and providing a detailed description of the R&D. This includes describing what advances in scientific or technical knowledge the R&D is hoping to achieve.
Each claim will need to be endorsed by a named senior officer of the business and any agent who has advised on compiling the claim must also be named. The significant increase in administrative reporting means that companies should check that their R&D advisers will be able to compile these forms in years to come and put systems in place to collect the required data, including 1 April 2023 onwards.
Businesses which have not made a claim in the previous three years must also inform HMRC of the intention to make a claim within six months of the end of their accounting periods.
Francesca, who works with SMEs across a range of sectors on a wide range of tax reliefs, said: “This will certainly come as a shock to a great many businesses as its introduction has largely been overshadowed by headlines about the recent reductions in the value of R&D Tax Relief for SMEs and the proposed merger of the two current R&D tax relief schemes.
“The move is to be welcomed as the requirement to have named employees and agents on the claim form can be seen to be a significant step in trying to reduce fraud and malpractice within what is a poorly regulated market.
“In practice, it should have little impact on businesses - such as those advised by Azets - which are already complying with the additional information guidelines but will certainly have an effect on companies who have effectively tried to shortcut the system and have been operating under the radar. ”
Francesca added that HMRC investigations into R&D tax reliefs were growing, particularly over the last couple of years, due to a boom in unregulated R&D tax consultancies and additional financial burden of R&D tax credits falling on the Treasury. She also cited that software claims, in particular, are being targeted by HMRC.
HMRC accounts for 2021 to 2022 estimate the level of error and fraud within Corporation Tax R&D reliefs to be £469 million or 4.9per cent of related expenditure. This comprises £430 million (7.3per cent) in the SME scheme and £39 million (1.1per cent) in the RDEC scheme.