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You may have seen a host of changes announced in the Spring Budget in March affecting the R&D Tax Relief scheme. But what do they actually mean for your claim, and how can you start preparing for them?
With the recent increase in scrutiny from HMRC, including more compliance checks and longer wait times for claims to be paid out, businesses can’t afford to make under-prepared R&D tax claims.
Business owners, finance directors and accountants must understand these changes to make effective, watertight claims.
Below, we’ve provided a list of the changes that may affect your R&D tax credit claim and what you can do to prepare for them.
In an effort to align the UK’s R&D Tax Relief scheme with international standards and increase R&D spend in the UK, HMRC announced that all subcontractor costs must be in the UK. The only exception is for Qualifying Overseas Expenditure (QOE). This new legislation will apply to accounting periods beginning on or after 1 April 2024.
For subcontractor costs to qualify, the work must be carried out in the UK, consumable items must be used in the UK, and any software, data and cloud services need to be undertaken in the UK. Similarly, Externally Provided Workers (EPWs) must be subject to PAYE and NICs.
QOE can only be claimed if the R&D activity cannot be completed in the UK, can be achieved elsewhere and cannot reasonably be replicated in the UK. Usually, QOE would be based on geographical, environmental and social conditions. For example, any research into specific geographical phenomena that do not occur in the UK would be eligible. The unavailability of specific equipment in the UK or the lack of enough patients in the UK population for a clinical trial could also lead to a company claiming QOE.
To mitigate this new challenge, it’s worth considering how your current costs would be affected and what changes you can make before these changes occur. We suggest reviewing your data collection methods and using the next months to tag and split out any overseas R&D costs.
Fortunately, these changes will come into effect for claims beginning on or after April 2024. Therefore, any companies relying on overseas activity for a substantial portion of their R&D claim will have time to assess the size of the impact and make any changes to UK-based activity, where appropriate.
You may be seeking guidance on the impact of these changes on your claim or how to mitigate the effects on the value of your claim. At Myriad Associates, we’re happy to review your data and work with you to establish the best methods to maximise your eligible expenditure for any past, current or future R&D activity.
Where overseas expenditure is being cut, software costs are increasing, which is likely a big boon for many software companies. Data license and cloud computing costs which directly contribute to R&D activities will be allowable expenditure. This change will take effect for accounting periods beginning on or after 1 April 2023.
HMRC will expect a fair and appropriate apportionment method to be applied to these costs. In advance of this measure coming into effect, you may wish to establish which fair method is easiest to use given your available data and which is most favourable to your claim. Fair and reasonable methods include based on the apportionment of staff hours, the number of licenses used, or the ratio of R&D data versus non-R&D data.
Previously, there was a grey area in the legislation around advances in pure mathematics. In the future, the legislation will be much more black and white; for accounting periods beginning on or after 1 April 2023, genuine advances in pure mathematics will be eligible activity.
Where you may not have tracked this activity previously, you may wish to start taking this activity into account when gathering data for your R&D tax relief claim.
Outside of the above changes, you can still claim the same cost categories as in previous years.
For accounting periods starting on or after 1 April 2023, some companies will need to submit a Claim Notification form before making their claim.
If you’re a first-time claimant or you have not made claims in the past three years, you must notify HMRC of your intent to make a claim within six months of the end of the accounting period you intend to claim for.
As HMRC has indicated that they will not accept late claim notifications, claimants need to be prepared much earlier. However, claimants will still have two years from the end of the accounting period to actually submit their claim.
Claimants will need to prepare the following information, which includes decisions on the R&D advisor that you may seek to engage the services of.
Since the 8 August 2023, the Additional Information Form (AIF) is a requirement for any R&D tax credit claim. This change requires all claimants to justify their claim’s validity under HMRC’s Guidelines. You must include company details, contact details and details of the qualifying expenditure you’re claiming.
Depending on the number of projects you are claiming for, you must also provide a certain number of technical justifications for the R&D activity. You must explain what your advance is and in what field, the scientific or technological baseline, your uncertainties, and how you sought to overcome these uncertainties. Outside of your technical justification, you must also provide a breakdown of the costs across the projects that you wrote up.
To prepare for this, we suggest you maximise your data collection and take notes of the different stages of R&D at regular milestones within the development period. Knowing when your projects began, what the R&D goals of each project were, the uncertainties you were staring down, and what work you did within the period will make this process much easier. This will require cooperation from all R&D staff to ensure that your claim is not just valid, but optimised. We also suggest tagging your cost data between direct and indirect R&D activities, as well as overseas activities.
If you haven’t been keeping track of your R&D work concurrently, or if all of this information is daunting, or even if you want some guidance and advice on any aspect of the AIF form, we suggest you get in touch with a specialist R&D tax advisor.
Ultimately, this latest batch of changes places an emphasis on bringing the UK’s R&D tax credit scheme in line with international standards. To meet these standards, companies will need to prepare much earlier and take further responsibility for ensuring the claim is valid and fair; that’s not even considering the opportunities to maximise your claim.
Myriad Associates has nearly two decades of expert experience in making R&D tax claims and has adjusted with each set of changes released by HMRC. Our advice is reliable and always given with maximising your R&D tax benefit in mind, whether that’s through consultation or through our online R&D Tax Credit portal, Tax Cloud. We want to support innovative and pioneering companies through these big changes, so you don’t miss out on your entitlement.
Myriad Associates has been managing R&D Tax Credit claims for nearly two decades, assisting a broad range of companies up and down the country. No matter what size or sector your company is in, we can help.
We understand how important R&D Tax Credits are, both to individual companies and the wider economy as a whole. However, because the government is keen to maintain the scheme’s success, they often update the rules and regulations around these R&D tax schemes, which can get confusing. This is where we come in.
The expert team of R&D tax advisors here at Myriad Associates apply a unique methodology when navigating through the complexities of the R&D tax claims process. To secure the R&D tax relief you're eligible for, we maintain a holistic approach.
First, we’ll work to understand the technical and scientific uncertainties your project faced in order to ensure we meet HMRC's strict R&D tax credits criteria. Then, we’ll use that information to build a robust technical report, collate all the relevant costs and calculate the benefit owed for inclusion in your company’s tax return.
We’ll also happily handle any enquiries from HMRC should they arise. The claims criteria can be difficult to understand and so enquiries are becoming a more regular occurrence as HMRC works hard to tackle abuse of the scheme.
Whatever stage you’re at in your claim for R&D Tax Credits, simply contact us on 0207 118 6045 or use our contact page.
Whether you need full support from start to finish or simply have a quick question, we’re here to help.
Has your R&D tax relief claim attracted the attention of HMRC? Don’t panic.
Enquiries into R&D tax relief claims by HMRC are on the rise. Our highly-qualified team will provide the utmost support to secure a beneficial resolution for your HMRC R&D enquiry, so that you can rest assured knowing your business is in safe hands.
We are well equipped to offer actionable advice on any R&D tax relief enquiries made by HMRC as well as provide proactive reviews that can help ensure complete peace of mind during these uncertain times.
If you’ve been contacted by HMRC about your R&D Tax Credit claim, or you’d simply like to know more, please do get in touch using our contact form or call our friendly team on 0207 118 6045.