Research and Development (R&D) is a fast-growing sector and makes up a major part of the UK’s economy. Recognising the significance of R&D projects to the nation’s infrastructure, the government has offered various tax reliefs and initiatives over the past 20 years, to support the efforts of UK companies.
However, the attractive nature of the government’s R&D tax relief schemes means that non-compliance issues arise frequently. Given how valuable the reliefs are in supporting the R&D sector, it is vital that the government is able to deliver the scheme as efficiently as possible. In a Corporate Report published earlier this year, HMRC introduced a new requirement for companies to submit additional information about their R&D claims when filing them, to discourage non-compliance.
What is the additional information form?
All R&D claims made from 8th August 2023 must be supported by an additional information form, submitted before the company’s corporation tax return. If a company fails to do this, but then goes on to claim R&D tax relief, their claim will be removed by HMRC.
The form will ask for information about your company (including company/contact details), when your accounting period begins and ends, and then details of the R&D expenditure you are claiming for, as well as any indirect R&D activities your company takes part in.
The form only allows for a fairly brief overview of your R&D project and so HMRC can only use it to make a rough risk-assessment of your claim. If after reviewing the form they think there is a higher risk that your claim doesn’t qualify for the relief they may open an enquiry to obtain further details.
Over the last year or so HMRC have been undertaking a lot more enquiries than they used to, and have been asking for considerably more detail when they do.
It is therefore very important to ensure that you have a more detailed report to support your claim. This can be attached to the company tax return, sent separately to HMRC, or kept back in case an enquiry is opened, but without it you may have difficulty defending your claim against a challenge.
We recommend that you plan in advance for the extra time that may need to be dedicated to the additional information required by HMRC, to avoid a last-minute rush. Alternatively, an agent acting on behalf of the company (such as one of our advisers) can complete the claim for you – check out HMRC’s full guidance here.
What R&D tax reliefs are there for SMEs?
If your company hires under 500 staff and makes a turnover of under €100 million, or has a balance sheet total under €86 million, then you may be eligible for R&D tax relief on your Corporation Tax obligations.
This would allow you to:
- deduct an extra 86% of your qualifying costs from your yearly profit (on top of the typical 100% deduction)
- claim a payable tax credit worth up to 10% of your surrenderable loss, if your company has claimed relief and made a loss.
Of course, you must be able to show how your company meets the standard definition of research and development, by explaining how it:
- looked for an advance in the field;
- had to overcome a scientific or technological uncertainty ;
- tried to overcome that scientific or technological uncertainty; and
- could not easily be worked out by a professional in the field.
At Fiander Tovell, we can help guide our clients through the R&D claims process. If you would like further information about the requirement to submit additional information, then please do not hesitate to get in touch on 023 8033 2733.
You can find more of the latest accountancy and tax updates here.