Key highlights from R&D Communication Forum – December 2023
From April 2024, the plan is to merge the SME and RDEC schemes into a unified RDEC-style scheme, maintaining similar rates to the current RDEC Scheme. While this announcement was made during the Autumn Statement, perhaps less clear was that the second scheme for Research Intensive companies means that RI SMEs can apply for RDEC as well as SME RI Scheme.
The merged RDEC scheme and Research-Intensive Scheme providing up to 45p/£ benefit, though if that is a mixture of cashed in losses and carry forward losses is unclear at the moment and clarification is being sought from HMRC.
HMRC are processing 92% of R&D claims within their own Service Level Agreement of 85% within 40 days, and they’re expected to maintain an overall 85% rate for the fiscal year 2023/24. Comparatively, the number of claims in 2023/24 has been lower so far than in the same period of 2022/23, although specific figures have not been provided.
Introduced in August, the Additional Information Form marked progress by mandating the technical report and standardising its format across the board. This move aimed to simplify HMRC’s assessment of R&D claims. However, despite these changes, the rejection rates remain high, with 3,632 claims rejected out of 16,332, submitted by 2,100 agents.
Most rejections of claims were due to no AIF being submitted, but also smaller numbers of wrong Accounting Period or Unique Tax Reference. AIF updates will be re-issued given feedback (no images and competent person sections) and to account for new legislation.
HMRC issued 240 correction notices (under paragraph 16-4b Schedule 18 Finance Act 1998), introducing a new strategy allowing direct alterations to a company’s return for “obvious errors.” In this instance, the purported obvious error was the inclusion of an R&D claim by the company, prompting HMRC to remove it from the submission. The concept of considering an R&D claim as an obvious error seems perplexing to me, but that’s the action being taken by HMRC. Out of the 240 notices issued by HMRC so far:
Not mentioned, was the size of the claims being dealt with via Schedule 18 changes. I suspect that the 79 that were amended and accepted by the company were either boundary pushing or not worth fighting over by the company, but that is just my assumption. HMRC stated a few times that a Compliance action plan is due in New Year from HMRC.
**NEW** An R&D disclosure facility will be launched in late January 2024. This is intended for companies to disclose mistakes or careless behaviour in making claims that are outside of the two year period for re-submission of accounts. The facility will have an R&D tax calculator to assist claimants and potentially will result in lesser penalties by disclosing details with HMRC.
**NEW** A Professional Bodies Mailbox will also come online in Late January for members of Professional Bodies to contact HMRC about R&D & breaches in standards, launched with Disclosure Facility. How this will operate will be interesting to see!
**NEW** In order for HMRC to address Tax Agents there will be a new R&D agent Compliance Management Team. The team will work with agents on an HMRC invitation only basis to improve compliance. This would appear to directly challenge agents with poor compliance history, resulting in potentially reduce enquiries. This is a confidential process and will not bestow any accreditation or mark of approval by HMRC on tax agents that are assisted by the Compliance Management Team.
HMRC Fraud Investigation Service (FIS) provided a first direct update, having never presented at the RDCF before. FIS reported on a criminal attack in April 2022 characterised by a volume number of claims by criminal gangs and opportunistic volume led agents. These claims amounted to £137 million across 2,800 cases. Shockingly, 80% of these claims received no response from the respective companies, 17% are now under HMRC enquiry, and only 3% have been disbursed.
Overall, the RDCF presented intriguing developments, though HMRC’s stance remains notably challenging. While there was a mention of a new format for the RDCF in the coming year, specific details or timelines weren’t disclosed.
In the dynamic realm of business innovation, the Research and Development (R&D) Tax relief scheme stands as a golden opportunity for companies to recoup a portion of their investment in groundbreaking projects.
On January 31, 2024, the National Audit Office published a report assessing Tax Reliefs aimed at stimulating economic growth. In our latest blog we address the scrutiny surrounding R&D tax relief, particularly focusing on the criticism aimed at the handling of the SME Scheme by HMRC.
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