The government have confirmed that they are to target abuse of the research and development (R&D) tax credit system, with new measures due to come into force from April 2023.
HMRC has identified losses of over £300 million due to fraud and error in R&D claims, whereby companies were set up to claim tax credits, even though they had no R&D activity taking place.
We explore the changes which are proposed to be made to the R&D tax credit system below.
From April 2023, there will be no relief for R&D activity sub-contracted to third parties who are located outside the UK. Externally provided workers will only be eligible for relief if they are paid through a UK payroll.
All R&D claims must be made digitally from April 2023. There are some exemptions however, for example, if you are exempt from submitting your tax return online, you will also be exempt from submitting an R&D claim digitally.
Compulsory technical narrative
Your R&D tax credit claim must include a compulsory technical narrative, which is basically a report which includes further details of the claim.
The report should demonstrate:
- The technological innovation(s) that your company has sought
- The current limitations
- The challenges you faced
- The resources used
- The outcomes achieved
Compiling a robust and detailed technical narrative and having an excellent record keeping process can help reduce the risk of investigation and maximise your R&D tax relief claim.
Endorsement from a senior officer
Before submitting the claim, you will need to obtain sign off by a named senior officer at the company, along with details of any agents who have advised the company during the claim process.
Inform HMRC in advance of making a claim
Companies must inform HMRC of their intention to make an R&D tax credit claim prior to doing so.
Get in touch
It is more important than ever to ensure your R&D tax credit claim is robust and compliant before submission. To understand how the changes may affect you, or for a wider R&D tax discussion, get in touch by emailing firstname.lastname@example.org.