Following on from last week’s RDCF meeting, HMRC has released the new draft legislation for the impending and much-needed reform of the R&D Tax Relief scheme with the changes coming into effect for accounting periods starting on or after the 1st of April 2023.
HMRC is seeking to clamp down on abuse of the scheme, through sub-standard providers, which has had an anticipated cost to the Treasury of almost £400 million. It’s clear that the 100 new inspectors employed by HMRC were merely the first step in a wide-scale fraud prevention effort.
With new risk assessment procedures, payment verifications, and resources at the disposal of the R&D Anti Abuse Unit, HMRC is clearly taking compliance seriously. All of this is in addition to the requirement for claimant companies to disclose key details of the tax agent who advised and assisted in compiling a claim.
The details of the relevant tax agent and the signature of a senior executive certifying the claim are accompanied by a request to provide further supportive evidence to back up R&D claims including a description of the R&D activities and a breakdown of the qualifying costs.
The much-debated requirement to notify HMRC of the intention to make a claim will be introduced for R&D claims, whereby those claiming relief will have to provide a pre-notification within 6 months of the end of their accounting period. Companies that have claimed in one of the preceding three periods will be exempt from the pre-notification requirement.
HMRC is also making changes to what costs can qualify. The inclusion of work undertaken by overseas subcontractors will be restricted to only include costs whereby the suitable conditions for the R&D activities to take place are not available in the UK. This aims to focus the tax relief more effectively on UK-based expenditure.
Similarly, only EPW costs that qualify under one of the prior exceptions or for which the company is subject to PAYE taxation will be eligible.
On the flip side, there is the much anticipated and welcome addition of data and cloud computing costs – The proposed legislation broadens the categories of allowable expenses, allowing data licenses and cloud hosting/computing expenditures to be claimed as R&D Tax expenses. This change will no doubt be welcomed by many over a host of sectors soon to benefit from this addition.
As HMRC finally clamps down on compliance and the quality of these R&D claim submissions, we advise using specialist and experienced R&D advisors with the relevant technical and financial expertise to be able to provide an accurate and compliant service. This helps to prevent any errors in submissions and reduces the likelihood of an inquiry