The UK’s research and development (R&D) sector is a hub of innovation, and a key contributor to the nation’s economy. To support this, the government has offered various tax relief schemes since 2000, recognising the efforts of UK companies investing in research and development practices.
The number of R&D claims grows each year. Given the potential support that R&D projects can provide to the UK economy, and the billion-pound R&D government investment each year, it is essential that HMRC are able to deliver the scheme as efficiently as possible. With this in mind, to ensure that the increased claims are due to a boost in innovation, rather than due to the attractive tax credits, HMRC have introduced a new step in the R&D claims process.
In July 2023, HMRC released a Corporate Report, outlining its approach to R&D compliance, introducing a new requirement from August, for companies to submit additional information about their claim. This will help to ensure that R&D reliefs are accessed only by those who need them and are eligible.
What are the R&D tax reliefs available for SMEs?
If your company is an SME with less than 500 staff and a turnover of under €100 million or balance sheet total under €86 million, then you may be eligible for R&D tax relief on your Corporation Tax.
This allows SMEs to:
- deduct an extra 86% of their qualifying costs from their yearly profit (on top of the typical 100% deduction)
- claim a payable tax credit worth up to 10% of your surrenderable loss, if the company has claimed relief and made a loss.
To receive this relief, you must be able to show how your project meets the standard definition of research and development, by explaining how it:
- looked for an advance in the field
- had to overcome the scientific or technological uncertainty
- tried to overcome the scientific or technological uncertainty
- could not easily be worked out by a professional in the field.
If your SME is focused on advancements in the arts, humanities or social sciences (including economics), you cannot claim R&D tax relief.
How does the additional information form work?
As of August 2023, companies are now required to support each R&D claim they make with an additional information form, submitted prior to their corporation tax return. If a company fails to do this, despite claiming R&D tax relief, then HMRC will remove the claim from their tax return.
The additional information provided will share an insight into the project that the company has carried out, allowing HMRC to determine whether they are truly entitled to R&D tax relief. Furthermore, this insight will give HMRC a better scope of the UK’s innovative projects, enabling them to better support companies and enforce compliance where necessary. Overall, the additional information will facilitate interception of non-compliance, which HMRC will then review on a case-by-case basis, before deciding on a penalty.
Submission of the additional information form is a requirement for all R&D tax relief claims made from 8th August 2023 onwards. Remember, the additional information must be submitted before your company tax return (including the R&D tax relief claim). Therefore, it’s important to be prepared for the extra time you will need to dedicate to completing the form, so that you are not caught short ahead of the company tax return deadline.
A representative of the company or an agent acting on behalf of the company can complete the additional information form, and you can find HMRC’s full guidance here.
How can we help?
If you would like to discuss your company’s research and development tax relief eligibility and the additional information form, then please do not hesitate to get in touch with our Tax Team at firstname.lastname@example.org or call 0161 905 1616.