HM Revenue & Customs (HMRC) over the last few years have imposed stricter rules on R&D tax relief claims, with the goal of reducing spurious claims by demanding more detailed project descriptions and evidence.
This took shape with the introduction of the Additional Information Form (AIF) – a form that must be submitted to HMRC to support your claim – which aims to increase transparency and reduce non-compliant claims.
However, statistics from HMRC have shown that it may have unintended consequences, especially for smaller businesses and first-time applicants – the extra administrative burden risks excluding smaller companies from entering the system.
Common errors when making an R&D Tax claim:
- The project activity falls outside the scope of R&D
- Expenditure outside the qualifying categories is claimed
- Staffing costs are claimed in respect of people who are not employees of the company
- Claims are made on equipment that does not fall under the scope of R&D tax relief
How can I prepare my R&D tax relief claim?
In the AIF form you will need to prepare the following:
- The main internal R&D contact responsible for the R&D claim (usually a company director)
- Any agents involved in the R&D claim
- Your company’s Unique Taxpayer Reference (UTR) – should match the one in your Company Tax Return
- Employer PAYE reference number
- VAT registration number
- Business type – current SIC (Standard Industrial Classification) code
You’ll need to compile a list of your projects along with details of your R&D. This information will be part of your technical report for HMRC. In the report, you should summarise how your project sought an advance in science, overcame uncertainties, and how a professional in your field could not easily replicate your achievement.
Top five tips for a successful R&D Tax claim:
- Keeping up to date with the latest rulings – The Government are likely to continue to clamp down on spurious claims around R&D, so it is key to keep up with the latest legislation to ensure you remain compliant. Seeking guidance from an expert is advisable, as they will have the knowledge and expertise to help you navigate your claim.
- Fully document your R&D projects – You should keep detailed records of your R&D projects, including project plans and timelines, technical specifications, testing procedures, and any challenges or uncertainties faced.
- Identify expenditures that are eligible for R&D relief – It’s essential to identify and include all eligible costs, such as employee salaries, subcontractor or third-party worker fees, consumables, and software licenses. Additionally, from 1 April 2023, cloud computing and data licensing costs are also included. Note that for accounting periods starting on or after 1 April 2024, any overseas expenditure on subcontractors or third-party workers will no longer be eligible.
- Stay on top of deadlines – Be vigilant about submission deadlines for your R&D Tax Relief claim, as missing them can result in the loss of potential tax benefits. Generally, you can submit an R&D Tax Relief claim within 2 years from the end of your accounting period. However, if you’re a first-time claimant or haven’t made a claim in the last 3 years, you’ll need to pre-notify HMRC of your intention to claim within 6 months of the relevant accounting period’s end. Failing to do so will result in the claim being rejected for that period.
- Keep detailed documentation for future claims – HMRC can enquire about any claim within 12 months of submission, so a good record system will save you time when filing subsequent claims. Keeping up-to-date records will help you to maximise future claims.
Getting in touch with an expert advisor is the best way to ensure your R&D claim is successful. Contact us here.