17 Jan 2023

R&D tax credits – Draft Guidance from HMRC

Ian Davie
Senior Consultant

HMRC R&D Communication Forum (RDCF)

In December, HMRC issued their Draft Guidance notes, which give more detail than previously seen documents (in some areas) about the future changes to R&D tax claims.

This guidance can be summarised as the following: 

  • Overseas Expenditure exclusion 
  • Data licences and cloud computing 
  • Claim notification 
  • Pure Mathematics inclusion 
  • Additional Information Form (Technical Report) 

For accounting periods starting ON or AFTER 1st April 2023, both SME and RDEC schemes will focus on UK costs only. There is more detail about the exceptions that will apply for overseas costs that can be included, as follows: 

  1. Externally Provided Workers located outside of the UK subject to UK PAYE/NI can be included. 
  2. Where subcontractor costs are split between UK and abroad, then UK costs can be apportioned. 
  3. There are 3 factors for HMRC to accept Qualifying Overseas Expenditure (QOE) covering geographical, environmental and social conditions:

a. Conditions necessary for R&D do not exist in the UK (like volcanoes!) 

b. Conditions are present in the overseas location where R&D is taking place. 

c. Wholly unreasonable to replicate the conditions in the UK (Start a volcano!) 

The guidance then goes on to explain what is “Wholly Unreasonable”. This means if testing facilities exist both in the UK and Overseas, and/or the company (not someone else) could replicate the conditions.

This is not allowed, unless the company does not have the expertise or can create a facility that would be little used.

However, if the latter is the case, then it’s allowed, unless a third-party could easily adapt an existing facility, then you can’t use it, unless due to time pressure, it takes too long to adapt or you are fully booked and too busy in the UK, then you can allow it! It’s obviously incredibly difficult to follow. 

Legal or regulatory requirements can also be a factor. This is where, for legal reasons, the work must take place in a particular country, whether stipulated in national legislation, international agreements or treaties, including regulatory bodies. This must be backed up with evidence in the form of correspondence with the regulatory body.  


Companies cannot claim costs for data they have the contractual right to sell on, this is to prevent R&D relief on costs the company can recoup.

Data sets that have been added to or significantly transformed, where the original data cannot be identified, will be allowed.

Interesting point: it does not explain if you can claim for data sets costs that are only partially recouped, especially where you are in the early phase of development. 



This has been a contentious area, which means that a new R&D claimant company in the future will only be able to claim one year back, not two years.  

A claim notification form can be submitted any time between the first day of the accounting period to 6 months after the end of the accounting period, over a period of 18 months for a normal 12-month accounting period.

The information that will be requested and must correlate with your CT600 and tax computation: 

  • The Unique Tax Reference (UTR) number of the company. 
  • Contact details of the main internal R&D contact at the company – this is the person from the business responsible for the claim. 
  • 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. 
  • Accounting period start and end dates of the accounting period claiming R&D for only – again, this must be correct and align with that on the CT600. 

I fail to see how this will stop fraud. What it will stop is 2-year claims, but HMRC should be checking if the claims are based on good R&D, not hoping a form frightens the boundary pushers and fraudsters away. 


You will all be cheering to know that pure mathematics is now allowed in R&D claims.

TBAT Innovation is yet to come across a claim where any pure mathematics has been developed; it is always in an applied mathematics context, but just in case, you can now claim for this. 


TBAT Innovation would call this the Technical Report.

This is submitted along with the CT600/Tax Comp as evidence of the R&D carried out by the company, usually as a PDF attachment.

The form will be mandatory and will need to be submitted before or with the CT600/Tax Comp, for any company accounting periods starting ON or AFTER 1st April 2023, so for most companies the earliest this will need to be used is from 1st April 2024. The form itself will go live in April 2023.  

There is not a lot of information that HMRC will be asking for that is not already provided in TBAT Innovation’s current Technical Reports: 

  • Employer PAYE Reference Number. 
  • VAT Number. 
  • Contact details of the person at the company that is responsible for the R&D claim. 
  • Contact details of any agent involved and their agent number (if they have one). 
  • A percentage of Qualifying Indirect Costs of the total claim value. 
  • Number of EPWs (Externally Provided Workers) who worked on the R&D projects and the PAYE scheme reference for these EPWs. 

I suspect this is to make it easier for HMRC to commonise the structure of the reports so that HMRC R&D caseworkers find it easier to understand the projects.

We have found the caseworkers at HMRC to have very little background in the sectors the claim relates to and have no experience in R&D. So having so many companies submitting reports in a range of formats and structures is an issue to HMRC, which must slow their processes.

It is an issue trying to explain complex R&D, in simple terms that are easy to understand but do not dilute the complicated nature of the difficulties encountered during the work.

It is, therefore, a good step by HMRC to get the information provided in a format that makes it easier to process.

We just hope this prescribed HMRC format allows key aspects of the R&D to be explained and is easy to work with. 

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