You will be well aware by now (and maybe fed up with hearing about them) that in Spring Budget 2023, the Government announced several changes to the R&D tax relief schemes such as changes in rates of qualifying expenditure and changes in tax credit rates.
You will have just got used to the changes which took effect on 1st April 2023. Phew!
Sorry to be the bearer of bad news, but another change is coming in on 8th August 2023 (delayed from 1st August). Are you prepared for it?
Changes from 8th August 2023
By way of a reminder, HMRC have completely changed the way in which R&D tax relief claims are submitted for claims made after 8th August 2023.
HMRC will require companies to submit a new additional information form. This form aids in standardising the process of submitting an R&D tax relief claim and gives clear guidance on the information which HMRC requires, where previous submissions could vary wildly in the level of detail provided by claimant companies.
If you need a refresher on the additional information form requirements or haven’t got a clue where to start, here’s the lowdown.
What is the new Additional Information Form?
The new additional information form is a requirement for submission of any R&D tax relief claim on or after the 8th of August 2023. The form must be submitted prior to the submission of the claim within the company’s Corporation Tax Return and is done so in the form of a self-assessment form.
The form can be submitted by the company, or company agent.
What if we don’t submit the form?
Where a company submits their Corporation Tax Return prior to the submission of the additional information form, HMRC will remove the R&D tax relief claim from the Corporation Tax Return!
R&D tax relief claims can still be submitted prior to the submission of the first Corporation Tax Return; however, the additional information form must be submitted prior to the submission of the amended Corporation Tax Return inclusive of the R&D tax relief claim.
It is worth noting that once the additional information form has been submitted, it cannot be viewed or edited.
What new information is included in the form?
Whilst the information required within the additional information form is not dissimilar to that included in a standard technical R&D report, there are some key pieces of new information that are now required:
Contact details of the senior internal contact in the company who is responsible for the R&D claim;
Contact details of any agent involved in the R&D claim, where applicable;
VAT registration number;
Employer PAYE reference number;
Unique Taxpayer Reference (UTR); and,
Identification of business type, such as the Standard Industrial Classification (SIC) code.
Although this information is now a requirement to provide, each claimant should find no difficulty in collecting this information.
What previously supplied information should be included in the form?
Whilst most R&D claimant companies will be familiar with the creation and submission of a technical R&D report, it is widely reported that a number of companies have only submitted the R&D calculation as a part of their corporation tax return. Key information which may have been submitted previously within a standard technical R&D report, which is required in the new additional information form, includes:
A list of the R&D projects in the financial year.
A breakdown of the qualifying R&D costs.
The detail surrounding the R&D project, including:
The field of science or technology.
This section outlines the field of science or technology in which the project takes place. It is worth noting that HMRC recognises arts, social sciences, economics, and humanities as non-qualifying fields for R&D tax relief. For projects from April 2023, mathematics will be brought within the scope of R&D tax relief.
The level of baseline knowledge/ capability within the industry at the beginning of the project.
This section describes the current state of knowledge and capabilities within the industry as a whole at the outset of the project. This is important in order to illustrate how the company has gone and above what was already available and created a scientific or technological advancement. For example, what was already available in the industry/ market? Why was this insufficient in order to achieve the company’s aims? Why could standard techniques, systems or knowledge not be applied? What was the existing gap in knowledge that the company sought to bridge?
The scientific or technological advancement achieved/ aimed to achieve.
The main criteria for qualifying for R&D Tax Relief is that the company has appreciably improved upon existing knowledge or capabilities within their chosen field. In this section, it will be imperative to illustrate how the project has gone ‘above and beyond’ that which has been described in the baseline knowledge/ capability section.
Further to this, it is important to note that R&D tax relief can still be claimed for projects where a company has replicated the R&D which another company has undertaken, as long as the knowledge of how to achieve it was not readily available during the project.
The scientific or technological uncertainties arising in the project.
For this section, it is necessary to illustrate to HMRC that achieving the scientific or technological advancement was non-readily deducible for the competent professional working in the field.
The activities undertaken in order to overcome the scientific or technological uncertainties arising.
This section is where details of the activities which were undertaken in order to overcome the scientific or technological uncertainties presented in the above section. Activities include design, testing, prototyping, etc.
How does this change the claim process for clients?
There will no longer be a need to submit the standard technical R&D report.
Instead, you must review the additional information form and gather the required information from the client ahead of submitting the form.
The R&D claim calculation must still be included within the Corporation Tax Computation and CT600. Previously, multiple R&D submissions could be made at once with an accompanying joint technical report. However, with this change, an additional information form is required for each CT600 submitted.
How completing this form may differ from previous submissions
As mentioned above, the information to be included in the form does not differ wildly from that which is included in a technical R&D report submission. However, there are several key changes, which we have outlined below:
1. Number of Project Descriptions
Where previously it was sufficient to submit details of R&D projects totalling at least 50% of qualifying R&D expenditure, HMRC now requires companies to detail a differing number of projects depending on the amount which the company is claiming on.
1-3 projects: HMRC requires a description of all projects the company claims for, thus covering 100% of qualifying R&D expenditure.
4 to 10 projects: HMRC requires a description of projects which account for at least 50% of the total expenditure, with a minimum of 3 projects described.
11 to 100 (or more) projects: HMRC requires a description of projects which account for at least 50% of the total expenditure, with a minimum of 3 projects described, as above. However, if the qualifying expenditure is split across multiple smaller projects, the 10 largest must be described.
2. Qualifying Expenditure Detail
Where previously it was sufficient to submit details of all qualifying expenditure on each project, the new form splits out direct qualifying activities and indirect qualifying activities. Companies must now give further detail surrounding the level of expenditure related to direct and indirect qualifying activities separately.
Where a company would have previously expressed a percentage of qualifying R&D activities against staff members' time, for example, they will now need to illustrate the amount of this time spent overcoming technological uncertainties and ancillary supporting activities.
However, it is imperative to illustrate that the indirect activities were essential to the success of the R&D project, rather than the day-to-day operation of the business.
What does this mean for your clients?
Clients who previously did not submit technical R&D reports
For clients who have previously not submitted a technical R&D report as a part of their submission, the submission of the R&D tax relief claim will become more onerous.
It will be necessary to create project descriptions detailing the qualifying R&D projects in line with HMRC tax legislation and the BEIS guidelines on the meaning of research and development for tax purposes.
It will be important to discuss this upcoming change with your client in order to prepare them for the increased workload in submitting an R&D claim.
We recommend that in your next year-end meeting, discussing the changing requirements of the relief with your client, emphasising the new information required for submission and the effects on submission, making them acutely aware of their additional work requirements for completing the claim. This will be a good starting point for them to begin to consider R&D projects which they have undertaken in periods in which a claim has not been submitted yet, preparing them for their technical meetings with their R&D advisor.
Clients who previously submitted technical R&D reports
For clients who have submitted a technical R&D report in the past, the submission of the R&D tax relief claim will be slightly more onerous, as a result of the changes listed above.
Potentially, more projects may need to be detailed than for previous periods, or further analysis of qualifying costs may need to be undertaken. However, these additional pieces of information should not lead to a great amount of extra preparation, depending on the quality of previous submissions and the number of projects necessary to include in detail.
We recommend, as above, to hold discussions with your client. Whilst major changes in any aspect of tax can be scary for clients, you should emphasise that the changes for them should be minimal and that their claim process will not differ too much.
Timings
For any company, irrespective of whether their clients have previously submitted technical R&D reports, the main impact will be on the timings of the claim.
Due to the requirement for the additional information form to be submitted prior to the submission of the CT600, it will be necessary to ensure that your R&D tax advisors or you have sufficient time to gather all required technical and financial information to complete the form prior to the claimant’s submission deadline.
Also, it is important to ensure that your client has enough time and resources to commit to providing the required information to you or your R&D tax advisor. Irrespective of the benefit of the R&D claim to the client, they can often find it difficult to prioritise the information collection in favour of completing their commercial work.
We would recommend setting clear deadlines with clients as a result, outlining the key information which is required and when the advisor will need to receive it.
How DTX can support you with the Additional Information Form
For DTX subscribers, our R&D tax specialists have been working hard behind the scenes to prepare for the introduction of the additional information form over the last few months.
For submissions made after 7th August 2023, our R&D tax specialists will prepare the required information you need to submit in the additional information form as agent and guide you through this new process.
It’s a wrap... for now!
The introduction of the additional information form comes as no surprise, following constant changing landscapes within the R&D tax relief world over the past few years. HMRC have continuously become stricter in terms of submission, providing guidance on what they expect to receive as part of an R&D tax relief submission. The additional information form is the next step in HMRC knuckling down on fraudulent cases, ensuring the tax relief is used to support businesses innovating within their chosen industries, as the reasoning for the introduction of the relief.
The next change to R&D tax relief comes into force on 1st April 2024 so keep your eyes peeled for updates from us early next year!