Rishi Shunak’s recent budget announcements have significantly increased the risk of claiming R&D Tax Relief; it’s important to understand why.

This month we continue to focus on R&D tax relief claims following the start of the new tax year, and the latest changes that businesses who are claiming, or are considering claiming, should be aware of.

The spring budgets of 2021 and 2022 have both seen very significant changes to how innovating companies can apply R&D Tax Relief to their tax calculations.

Kirk Newsholme partner with internationally renowned Innovation Funding Specialists ABGI, whose PHD-qualified consultants can optimise our clients’ R&D Tax Relief claims, enabling a smooth and simplified approach to the process of claiming.

To provide expert advice in the application of R&D Tax Relief, professional advisers need not only accounting expertise, but also knowledge and proficiency in the sciences and technologies that our innovative clients are advancing.

Whilst many of our readers will have applied for R&D Tax Relief for many years and have a good understanding of the scheme, Russell McGrath, Innovation Funding Specialist at ABGI, warns that recent developments in R&D tax legislation mean that extra caution is needed:

R&D Tax Relief results in reduced tax revenue to HMRC of around £8BN per annum!

HMRC is carrying out a review to ensure that this huge sum is having the positive effect required to make it worthwhile to the UK economy. In both Spring 21 and Spring 22 budgets, the Chancellor announced continued reform of R&D tax credits to ensure they are effective and better value for money.

These reforms include:

  1. Crackdown on non-compliance – Additional resources and new technology for HMRC including the recruitment of 1,200 additional compliance staff to ensure corporation tax returns are accurate and supported by facts.
  1. Claims to be signed off by a client’s director – Tax Relief claims will in future require much more detail on what type of expenditure the claim covers, the nature of the advance sought, the field of science or technology and the technical uncertainties overcome. A Director within the claiming company will need to sign off that the technical report submitted represents an honest description of that which has taken place, and that the associated costs are accurately represented.
  1. Claims to be submitted digitally with a full technical narrative – Tax Relief claims will be submitted digitally, and all claims will require a supporting technical report.
  1. Disclosure of the adviser that compiled the claim – To protect the integrity of the R&D tax reliefs scheme and tackle abuse, claims will need to include details of any agent who has advised the company on compiling the claim.
  1. Pre-submission notification to HMRC for all claims at start of the financial year – Claiming companies will need to notify HMRC at the start of the year that they intend to make a claim at the end of the year.
  1. All qualifying R&D must take place within the UK – Restricting qualifying R&D to UK-based activities only. R&D which takes place outside of the UK, but is paid for by a UK company, would no longer be allowable as a qualifying cost.
  1. SME cap on payable tax credit

Maximum claim value from April 2021 expenditure = £20k + 3 x PAYE total (all employees + connected subcontractors and/or Externally Provided Workers) – to reduce fraud.

It is clear the changes will have far reaching impacts upon current and future claimants. For more information or to discuss R&D claims in more detail, please contact Justin Smith on 0113 2044228 or email justin.smith@kirknewsholme.co.uk