Posted: 06 / 07 / 2023

Article by: Andy Nixon, R&D Director

With R&D tax relief facing its biggest overhaul since the Research & Development Expenditure Credit scheme (RDEC) was introduced in 2013 – and perhaps ever – businesses are being urged to file any outstanding claims before 31st July head of a new online process for R&D Claim submissions landing on 1st August 2023.

The new online process is understood to be far more rigorous and, with HRMC currently going through a phase of mass recruitment, the first wave of claims will no doubt encounter additional checks as HMRC get to grips with the new process.

The government’s R&D consultative forum (RDCF) – of which I am a member – is due to meet in late June, where I expect to get an early insight into the thinking and changes to the regime, as well as act as a voice to feedback on behalf of our clients.

With that in mind, and with the House of Lords investigation into the R&D Tax Regime recently concluded, the key points around the changes are summarised below:

Key takeaways from government’s response to R&D Tax Relief

  • The call to abandon the claim notification requirement has been rejected.
  • The recommendation to resolve the uncertainty arising from the Quinn case has been rejected. HMRC’s view on subsidised expenditure remains unchanged and is set out in the CIRD.
  • The responses to the recent single scheme consultation are under consideration. Draft legislation for consultation, and a summary of consultation responses, is to be published this summer. (Suspect we will find out more at the end of June RDCF Meeting)
    • The single scheme decision will significantly influence other aspects of the R&D reform agenda.
  • Overseas expenditure restriction will come in from April 2024, there is currently no intention to introduce further exemptions. Focusing support on R&D activity in the UK is a priority.
    • It is intended to provide ‘more tailored examples’ regarding the overseas expenditure restrictions in line with the deferred implementation of this restriction.
  • The government is keeping the proposed scheme to better support R&D intensive loss-making SMEs under review.
    • I suspect this will be an area of scrutiny, expect significant challenge.

Other points of note

  • Following on from the NAO report into Fraud, a more accurate estimate of fraud and error will soon be provided to the Public Accounts Committee. A ‘clear action plan’ will be introduced to reduce fraud and error and further measures may follow. Worth a read, eyewatering sums of money involved!
    • £21bn estimated fraud for 2021-22, of which 7.3bn related to Covid19
    • £469 million of error or fraud was estimated attributable to R&D in 2021-22
  • In context ~£2.6bn worth of PPE contracts were issued using “VIP” lane via MP/Ministers suggested suppliers almost all was entirely fraudulent (P33) so R&D much as it gets bad press, it is in part a convenient distraction.
  • A review of the CIRD and the Guidelines for Compliance project is underway. (Suspect we will find out more at the end of June RDCF Meeting)
  • Good to read that Officers have been mandated to focus on simplification in the policy making process and on simplifying existing rules and easing the administration burden.
  • The government has rejected the recommendation to include a warning about potential subsequent recovery of funds with the processing of claims. The point is made in the CIRD, and risk is mitigated through the reforms announced.
  • HMRC has agreed to better promote usage of the Advance Assurance Process for SMEs. The scope of the process may be extended to allow repeat usage but there is no intention to extend the process to RDEC claims.
  • There will be no fundamental review of the definition of R&D at this time.

CONCLUSION

Claiming under the current scheme? Make sure you’re set up for the new scheme!

The changes above, which include a new mandatory format for submission – guidance for which is scarcely accessible for businesses – has made this current iteration of the R&D scheme as complex as it has ever been.

If you are used to claiming under the current scheme, you should review whether you are set up for the new regime. Our R&D team is made up of experts who have previously held notable positions at Grant Thornton, EY, and Deloitte, leading claims for major household names, from manufacturers and tech companies to pharmaceutical labs and retailers.

Get in touch with me by emailing [email protected] and we’ll be happy to help.