The Research and Development (R&D) tax relief scheme is a significant incentive for businesses in the UK, encouraging innovation and growth. However, with the introduction of the Finance (No. 2) Act 2023, there have been more changes to the process of claiming R&D tax relief. One of the key changes pertains to R&D claims made 'in error'.
In her recent session Research and Development Tax Changes in Finance (No 2) Act 2023, Rebecca Benneyworth was able to shed light on what R&D Claims made in error means and the implications for businesses.
Rebecca explained that under the new legislation, an R&D claim is designated as 'in error' if it does not meet either the advanced notification requirement or the new additional information requirements. The advanced notification requirement mandates that companies intending to make an R&D claim must notify HMRC six months after the end of the accounting period in which the R&D expenditure was incurred. The additional information requirement, on the other hand, necessitates that companies provide detailed information about their R&D projects, including company details, project details, and qualifying expenditure details.
If a company fails to meet these requirements, Rebecca clarified that the claim is considered 'in error', and HMRC will amend the return to remove the claim. This is a significant departure from previous legislation where companies could reject amendments made by HMRC. Under the new rules, if a claim is deemed invalid due to being 'in error', it will be immediately struck through, rendering it null and void.
This change has implications for businesses. Firstly, it places a greater administrative burden on companies, requiring them to provide detailed information about their R&D activities and expenditures. Secondly, it increases the risk of claims being rejected if they do not meet the stringent requirements.
Moreover, the consequences of making a claim 'in error' can be severe. HMRC is not only demanding back all of the relief from the claimant company but also imposing penalties sometimes on the claimant company and the intermediary agent. This creates a challenging environment for businesses and intermediaries alike.
To avoid making claims 'in error', businesses need to familiarise themselves with the new requirements and ensure they are met before submitting a claim. This includes providing detailed information about their R&D projects and notifying HMRC in advance of their intention to make a claim.
To watch the full session, click here. In the session, Rebecca Benneyworth covers the above as well as the following topics:
- New qualifying expenditure categories
- Advance notification requirement
- Additional information to accompany claims
- HMRC power to deal with claims made ‘in error’ and what this means
- Proposals for further changes in 2024 and beyond.
The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.