April brings enormous change in the R&D world with new requirements on how claims should be submitted. One change, however, on the need to notify HMRC in advance of a claim, has until now lacked any significant detail on how it would work.
Yet it is one of the biggest changes to the legislation for some time, and one which may pose a particular challenge for companies that do not get timely enough advice on whether their R&D qualifies for relief.
What is changing in April?
Accountants and companies should be familiarising themselves with some of the upcoming changes to the Finance Bill legislation, because submitting an Research and Development claim to HMRC will soon look very different.
The changes, which are scheduled to come into effect in April 2023, will mean:
- all claims must be submitted digitally
- claims must include all details of qualifying activities and costs
- claims must be signed off by a senior named officer at the claimant company as well as identify the submitting agent
- companies need to let HMRC know in advance if they intend to make a claim
That final requirement, on the need to notify HMRC before making a claim, has been the subject of much speculation over how it will work, but the crucial details were released in draft guidance from HMRC, on 20 December 2022, which clarifies some of the technical aspects.
The changes on prior-notification mean that for accounting periods starting on or after 1 April 2023, first-time R&D claimants and any companies that have not made a claim in any of the previous three calendar years will need to fill in a Claim Notification form. In other words, these companies will need to notify HMRC in advance of their intention to submit an R&D claim within six months from the end of the accounting period for which the claim is to be made.
For example, a company that submitted a claim in 2022 and will do so again in 2025 will not need to make a notification, as it made a claim in the previous three calendar years. However, a company that last claimed in 2021 and will claim in 2025 will have to do so.
The earliest date that a Claim Notification form can be submitted is on the first day of the accounting period to which the claim relates.
The latest date for submitting the Claim Notification form is six months after the end of the relevant accounting period to which the claim relates.
These notifications do not last indefinitely. New Claim Notification forms will have to be submitted if a company’s accounting period changes prior to a claim being made, or if they decide not to claim until a later date.
The form will be made available in April, and is expected to require:
- the Unique Tax Reference (UTR) number of the company
- contact details of main internal R&D contact at the company
- contact details of any agent involved in the R&D claim
- agent reference number (if you have one)
- period of account start and end dates which must correlate with your tax computations
- accounting period start and end dates which include the period you are claiming R&D for.
Why is this happening?
HMRC is making reforms in an attempt to crack down on abuse of the R&D tax relief scheme.
There is one big and obvious risk under the new rule for prior notification, which is that companies that do not get timely advice on claiming R&D tax relief could miss the deadline and lose out.
It makes it more important than ever for companies and accountants to be in contact with an R&D tax relief expert that can advise on eligible R&D activity, Claim Notifications and other new requirements.
All of this is still in draft form at the moment, and HMRC is still taking comments until 28 February 2023. But, as it stands, we can expect these changes will all come into effect in April.
Responding to HMRC
Our team of innovation funding specialists will be responding to HMRC on these by the deadline of 28 February 2023. As always, we value our client feedback so welcome any questions or queries you may have about how the reforms could impact future R&D claims.