HMRC R&D Communication Forum (RDCF)

TBAT Innovation questions to HMRC

TBAT asked eight questions, of which four were raised in the meeting:

• R&D work that replicates others’ R&D that is not in the public domain? (Paragraph 21 in the BEIS guidelines).

A summary of the reply was that a company should be able to demonstrate even if another company has made the advance and not told anyone. You should be able to demonstrate that in your case and how your specific advance is still an advance in science and technology. This is a difficult area to demonstrate and talking to an R&D tax agent can help, as it is complicated.

• Processing times return to 28 days?

HMRC’s ambition is to return to 95% of claims processed in 28 days asap, but with the processing peak in December and reform changes due to land, the intention is to continue to hit 80% processed within 40 days in the short term. Remember if you are seeking a repayment, add two weeks on top of that for payment processing.

• How is R&D pre-registration meant to avoid fraud?

Pre-registration will provide HMRC with some information on claim, which could result in a “Are you sure?” letter. This will also stop agents encouraging claimants to make fraudulent claims going back two years.

• Will the revision of the ONS data have an impact on the R&D schemes?

ONS R&D data has always been less than HMRC R&D eligible costs.

ONS’s methods have not been changed since the 1980s; they have now revamped their process and their new estimates appear to align with HMRCs figures, though HMRCs figures do not include R&D in grants, capital expenditure, arts and social sciences, so still some significant differences between the two sets of data.

The expectation is that overall company R&D spend will increase from £37Bn in 2020/21 to £60Bn in 2027/28.

Summary

The presentations from HMRC did not tell us much other than what is in the public domain. Though we did pick up a few snippets of new information:

• All the proposed changes planned for April 2023 will be going ahead. Rates changes, cloud computing, data costs and mathematics added, foreign sub-contractor costs excluded, pre-registration of an R&D claim, senior company sign off of claim, notification of use of an R&D agent to prepare the claim are all going to happen. The rates changes will save £1.3Bn by 2027/28.
• The generous nature of the SME scheme encouraged fraudulent claims, and it is HMRC’s thinking that by reducing the benefit rates this will reduce fraud.
• HMRC are struggling to meet their SLA (Service Level Agreement) of processing claim in 28 days and are presently targeting 80% of claims processed in 40 days. Reviewing the SLA is an option being considered. They believe they are up to date with claims.
• HMRC have processed 24,000 SME and 3,000 RDEC claims to date since 1st April 2022.
• During December claims are expected to peak, so early filing recommended, with additional HMRC resources added to stay within the current 40-day target for 80% of claims.
• Make sure that technical reports on the R&D activity focus on the R&D and not the commercial aspects of the project.
• HMRC are planning an educational piece on R&D with letters out to companies plus some webinars on software due to launch in the next couple of months.

TBAT Thoughts

We await to see what the digital G Forms look like, and how a unified scheme, similar to the RDEC, will operate next year.

I still disagree with pre-registration as it stops genuine companies doing good R&D going back 2 years to make a claim. If there are some simple details of what the R&D is, then fraudsters will work out they can put down some great R&D projects to get round this step.

Fraud is the biggest issue facing HMRC and the reputation of the scheme. This will not be tackled by rates changes or pre-registration, only by HMRC correctly policing the scheme and dealing with the fraudsters.

With HMRC thinking they are up to date on processing claims in 40 days, TBAT have a number of clients that submitted in June or before where claims are yet to be processed, so we don’t think HMRC are up to date.