As of 8 August 2023, HMRC have rolled out significant alterations to the research and development (R&D) tax relief claim process, impacting the way claims are submitted. However, three months on, there still seems to be uncertainty around the new information requested. This article aims to provide a brief overview of the requirements, to assist business owners with effectively aligning their submissions with the new filing method for R&D claims.
Key changes to remember
- Introduction of an additional information form (AIF): For all R&D tax relief claims from August 2023, including both small or medium enterprise (SME) and research and development expenditure credit (RDEC) schemes, companies now need to submit an AIF in advance of their corporation tax return.
- Early submission is critical: Without this form, HMRC will not process claims. Timing is crucial.
- Calculation adjustments from April 2023: See (How is R&D tax relief calculated? Examining the changes from April 2023) in more detail.
What is the additional information form (AIF)?
A major shift in the R&D tax relief process is the introduction of an additional information form (AIF). This form, now a cornerstone of the claim process, must be sent to HMRC in advance of a company’s corporation tax return. Its role is not just procedural, but pivotal in ensuring that R&D claims are processed by HMRC.
Essential information required for the AIF
- Company essentials: Unique Taxpayer Reference (UTR), PAYE reference number, VAT registration and Standard Industrial Classification (SIC) code.
- Claim periods: Start and end dates of the accounting period for the claim, matching the company’s tax return.
- Relief type: Whether the submission is for a SME claim, RDEC claim, or both.
- Expenditure summary: Breakdown of qualifying expenditure, including indirect activities.
- Project particulars: Number of projects, detailed descriptions and qualifying expenditure per project.
In addition to company specifics, the AIF demands contact information for the senior person within the organisation responsible for the claim, along with the engaged agent. This ensures a clear line of communication with HMRC.
Who can submit the AIF?
Whether it’s a company representative or an agent, it is crucial to have the appropriate credentials through the Government Gateway. This underscores the importance of ensuring that internal processes are aligned with new requirements.
Project description details
Under the new guidelines, the number of project descriptions required varies depending on the volume of projects included in the R&D claim. This scale of detail ensures a robust evaluation of a company’s R&D activity. For smaller portfolios (one to three projects), each specific project needs detailing, and as the number of projects increases, the focus shifts to providing descriptions for those constituting at least 50% of the qualifying expenditure.
- One to three projects: Describe each project in detail.
- Four to ten projects: Cover at least 50% of qualifying expenditure, with at least three detailed project descriptions.
- 11 or more projects: Describe up to ten major projects, covering 50% of incurred expenditure.
Project description components
The narrative should encapsulate the essence of a company’s R&D efforts, highlighting the field of science or technology, the baseline knowledge at the project’s inception and the advancements it aimed to achieve. It’s also about identifying the uncertainties the team faced and the methodologies employed to overcome them. This level of detail is not just blue tape; it’s a testament to the innovation and problem-solving skills driving R&D at the heart of businesses.
- Field of science/ technology: The project’s primary area of focus.
- Baseline knowledge: The existing scientific or technological standards at the project’s initial onset.
- Aim for advancement: The intended progress in scientific or technological knowledge.
- Uncertainties and solutions: Detailing challenges faced, and methods employed to overcome them.
Supplementary information submission
While the AIF sets the framework, there’s room for additional information. This could include the methodology for identifying and recording R&D activities or a detailed breakdown of qualifying costs. This provides a company with the opportunity to paint a full picture of its R&D endeavours, reinforcing the robustness of the claim.
- Extended details: A company may include additional information such as methodological approaches, professional biographies and a detailed cost breakdown.
- Submission method: This should accompany the CT600 form, with a note in box 657 indicating the submission of supplementary information.
These changes might seem daunting, but they present companies with an opportunity to reassess and strengthen their approach to R&D tax relief claims. By embracing these new requirements with a strategic mindset, companies can ensure that their business not only complies with the latest regulations but also that they are accurately claiming the benefits due for innovative activities.
By working with experienced advisers, investing time in robust tracking and documentation practices, and ensuring compliance with guidelines and regulations, companies can continue to benefit from the scheme and re-invest in innovation year-on-year.