Guest article written by Adam McCann, CEO and Co-founder of Claimer.
From 8 August 2023, HMRC has mandated that all companies submitting R&D tax relief claims in their tax returns must also supply additional information alongside it, using an online form they have provided. Any claims submitted without this information will be rejected.
It’s a big update. It not only changes the submission process, but the implication is that many accountants and advisors will need to modify how they collect and link R&D expenditure and activities.
In this article, I’m going to summarise everything you need to know, so that whatever your state of readiness, you have the facts you need to be compliant.
At the end, I’ll outline how you can automate the submission process with software.
What is it?
Attaching an R&D report with a breakdown of R&D activity and expenditure information alongside tax returns is considered standard practice among the majority of accountants and R&D tax specialists today.
But HMRC’s guidance has never formally required this report, let alone provided a prescriptive report structure, explaining only that ‘it helps’. This means the structure and level of detail from each company or agent can vary dramatically.
Corporation Tax in the UK is effectively self-assessed, with HMRC relying on compliance checks (‘enquiries’ in R&D tax lingo) to deter fraud and reduce errors.
When a claim is under enquiry, HMRC often includes a standard template to complete and has clear expectations for the structure and level of detail.
This has begged the question: why not just formalise these expectations and structure? Well, this is exactly what happened in April 2023 as part of a raft of reforms that came in, aimed at curbing fraud and egregious R&D tax agents, with more changes expected in 2024.
HMRC will require all companies (or their representing agents) to submit a comprehensive online form detailing the R&D expenditure and activity before the corresponding tax return.
Not submitting this form, or submitting it after the tax return, will result in its rejection.
Why introduce this now, after 23 years?
Much like the standardisation within the CT600 form, every claim having an associated completed form will enable HMRC to assess and analyse claims, the claimant companies, and R&D agents far more easily and consistently; both on an individual basis and in aggregate.
R&D tax relief in the UK has been around since the year 2000, so why now? Perhaps the assumption up until now was that the prevalence of fraud and error would stay inline with other forms of tax, and formally requiring a lot of detailed information for every claim would be burdensome for the majority of legitimate claims.
We can only speculate, but what we know is that the information is now required, burden or not.
Summary of the requested information
If you don’t already collect this level of detail for each claim – for instance, breaking down qualifying expenditure by project and scheme – you should begin doing this immediately.
Claims without an associated online submission, which requires this detail, will be rejected from 8 August.
- Business details: VAT/PAYE reference number, UTR, business type, primary SIC code
- Contact and agent details: Contact information for a named ‘senior officer’ at the company any agent involved in the claim
- Accounting details: Accounting period start/end date
- Qualifying expenditure: Total direct and indirect qualifying expenditure broken down by category, and the number of R&D projects undertaken in the financial year.
- Project details: for each project, the expenditure (scheme) type, field of technology, a description of the technological or scientific baseline, the advance sought, uncertainties faced, and work done to overcome the uncertainties.
How long does it take to complete?
It typically takes 30 to 45 minutes for each claim, depending on the number of projects, the length of your technical narratives, the format of those narratives, how readily available the information is, and frankly how adept you are at intricate copying and pasting!
With this mandatory form, is HMRC still expecting an R&D report attached to the tax return?
It’s recommended, but not mandatory. We asked HMRC directly, and the response was:
“HMRC recommends the utilisation of the additional information form pre-August 2023, whilst continuing to include the R&D report for this claim and future claims should it be customary business practice to do so. Whilst not mandatory, the provision of the R&D report will aid HMRC’s understanding of the R&D activities and the methodologies implemented in formulating the claim.”
This makes sense given the online form does not cover several aspects of a claim, for example the company and project background, projects that were considered but did not qualify, the self-assessment methodology, and a detailed expenditure breakdown.
Again, we can only speculate as to why these aspects were not just included in the online form.
Things to watch out for
- You need to submit the online form before the corresponding Corporation Tax return, otherwise the R&D claim will be removed from the tax return (the claim will be rejected).
- A separate submission is required for each accounting period for Corporation Tax. This means if a company is making an R&D claim with a financial year spanning more than 12 months, and therefore needs to submit more than one tax return (CT600), it must also submit the corresponding number of ‘additional information’ online forms, selecting ‘yes’ to the ‘Is the accounting period ending <date> part of a long period of account?’ question.
- You only have a single box per project to detail the baselines, advances, uncertainties, and work undertaken. However, the vast majority of companies will undertake more than a single R&D activity per project, requiring you to consolidate and indicate the individual activities in each of the baseline, advance, uncertainties, and work undertaken boxes.
- On top of the above, each free text box is limited to 20,000 characters, or approximately 2,800 to 5,000 words. As such, projects that contain several activities may need to have the activity descriptions summarised.
- Upon submission, you don’t get a copy or record of the submission, only the submission ID.
- The form will ‘timeout’, losing any unsaved changes within 15 minutes.
- Saved changes will remain in a draft state, and you have 21 days to submit the form before your progress is lost.
Submitting as a company or tax agent: the difference
The online form and official guidance for completing it is already live here.
In order to access and use it, you will need an HMRC Online Services account acting as a company or an agent. Note that registering as an agent will require you to first apply for an agent code for Corporation Tax, which has its own set of requirements out of scope for this article.
Accessing the service as a company will limit you to submitting a single online submission at any one time. But with an agent login, you are provided with a reference number for each submission, allowing you to retrieve and complete several forms in parallel.
Automatic 1-click submission with software
For anything more than 1 or 2 claims a month, completing this form manually creates several hours more admin work. It’s also prone to error, which can leave the claim more open to an enquiry.
The good news is that Claimer has developed software that integrates with HMRC’s systems to provide 1-click automated submissions.
How it works
- Upload your finalised R&D report
- Our software uses OCR and AI to extract and reformat the information, before presenting it for your approval.
- Click submit, and the form is automatically sent to HMRC’s systems, providing you with a reference number and a log of the submission’s content.
The software is then able to track the claim throughout HMRC’s systems, notifying you when the claim has been received, processed, and paid (for payable tax credit or refund claims).
If you have any questions on the new requirements, or Claimer’s software, feel free to reach out to me at [email protected]
Content by Rufus Meakin (R&D Tax Credit Insider Newsletter)
Find the full article here
