New HMRC Guidance and Rules for R&D Tax Reliefs

The UK’s R&D Tax Relief schemes have undergone significant change in the last few years, and the end of 2023 seems no exception. HMRC have released new guidance this month outlining what they expect from all R&D Tax Relief claimants.

Many claimants seem to be struggling to comply with the new rules. HMRC have reported that nearly half of all claims received since 8 August 2023 did not include the mandatory Additional Information form, thereby invalidating those claims.

There has also been a huge increase in compliance activity from HMRC, with a volumetric approach to enquiries adopted that has seen many a claim refuted by HMRC. In fact according to latest figures from HMRC, 75% of all claims they enquired into contained errors or in some cases did not qualify as R&D for tax purposes.

In response to this issue with an aim of helping companies to get it right, HMRC has released new R&D compliance guidance. Before you can claim R&D Tax Reliefs, HMRC expects companies to follow some specific steps, as outlined below.

What qualifies as R&D for tax purposes

Firstly, to qualify as R&D for tax purposes, a “competent professional” (or team of competent professionals) in the relevant scientific or technological field must be working on the project, and they must be able to:

• identify projects that aim to create new knowledge or capabilities.
• confirm that these projects are related to a qualifying field of science or technology.
• explain the uncertainties the projects aim to solve and why the answers weren’t immediately deducible.
• describe the state of knowledge in the field and how resolving these uncertainties would advance it
• ensure the projects sought to advance the overall field, not just your company’s application of the R&D.
• define where each uncertainty begins and ends.
• explain how you plan to resolve each uncertainty.
• document the steps taken to resolve uncertainties throughout the project.

Submitting the claim correctly

To submit a valid R&D Tax Relief claim for the above project, you or your R&D adviser must:

• Identify the activities directly contributing to resolving each uncertainty.
• Identify qualifying indirect activities listed in BEIS/DSIT guidelines.
• Identify the costs of these activities from your records.
• Check if accounting rules, guidelines, or tax laws restrict or disallow any costs.

Maintaining accurate records of these steps is extremely important, as the legal responsibility for the R&D Tax Relief claim remains with your company, even if you have advisers helping you submit them.

HMRC guidance for a valid R&D Tax Relief claim

While not a mandatory set of steps, HMRC has released the following recommended approach to ensuring your R&D Tax Relief claim is robust, valid, and unlikely to be caught in an enquiry.

1. Plan Ahead

   1. Identify work that may qualify for tax relief in science or technology.

   2. Define the advances you aim to achieve.

   3. Document uncertainties to resolve and steps to tackle them.

2. Involve a “Competent Professional”

   1. Consult an expert in the field for guidance.

   2. Ensure their opinion is specific and well-documented.

3. Review previous projects

   1. Recognise ongoing or completed projects that might qualify

   2. Seek expert advice on existing or completed work

4. Keep good records for identifying qualifying projects and costs

   1. Use estimates based on evidence if required

5. Gather and prepare evidence

   1. Be ready to provide evidence if HMRC checks your claim.

   2. Documentation that can be used for evidence includes project-related records and testing results.

6. Speak to a qualified advisor to ensure your claim is accurate

   1. If in any doubt about the legitimacy of your claim or qualification status, seek help from a qualified R&D Tax Relief adviser or speak to HMRC directly. But remember, it is the business’s responsibility to ensure the claim is valid.

Can Radius help you? Some firms have tax generalists preparing R&D Tax Relief claims for clients. The Radius team are full-time specialists. We systematically consider every possible way in which claims can be maximised within legislative parameters. We also have detailed quality assurance processes to ensure claims are fully optimised and compliant. All claims are reviewed by an ex-HMRC R&D tax inspector before submission. If you require advice you can trust relating to an R&D project and potential tax relief claim, we encourage you to get in touch today.