At Rocking Horse, we continue to assist innovative companies access financing through our advance funding solution for both R&D tax refunds and Gov.UK grants, allowing SMEs to Innovate, Accelerate and Grow.
The R&D tax credit regime changes on the 1st August 2023, and it is imperative that you know what is required or you could find your claim delayed or even rejected entirely.
The changes, which see applicants needing to submit much more information about their claim mean that businesses need to think carefully about timing.
So let’s take a look at the changes and what you need to do to submit a successful R&D claim from August onwards.
- Why are there changes?
- Project information
- Financial information
- Information about your company
- How to submit the new information
- The Rocking Horse take
Why are there changes?
This simple answer to the question, why these changes are being brought in by the government, is that HMRC doesn’t have a stellar record when it comes to detecting, stopping or investigating fraud.
In fact, HMRC itself estimates that £469 million was lost to R&D tax credit fraud alone in the tax year 2021-22 so there’s a large target to hit, to say the least.
As a consequence, the tax man has had to come up with a response to the increasing number of fraudulent claims and this measure is the latest weapon in their armoury.
The first category of changes to the information you’ll need to submit is in the area of project management and administration. You’ll need to describe the projects you are claiming for in detail and the number of descriptions required changes depending upon how many claims you are putting in.
If you are submitting 1-3 projects, then you will have to describe each one in detail.
If your submission is for 4-10 projects, then you will need to describe at least 4 and these must make up at least 50% of your total claim by value.
If you are claiming for 10 or more projects, then you again need to describe 3 making up at least 50% of total expenditure but you can confine this to the latest 10.
In addition, you will also need to explain the following:
- What is your main field of science or technology?
- What was the baseline level of science or technology that you planned to advance?
- What advance in that scientific or technical knowledge did you aim to achieve?
- What scientific or technological uncertainties did you face?
- How did your project seek to overcome these uncertainties?
- Which scheme you’re applying to, and how much you’re looking to claim
These mirror the scheme rules that have always been in place, but now you need to attack them like an exam question, answering specific questions on each of the rules.
Under the new rules, you will need to explicitly set out financial information relating to the project. Again this information relates to the rules that are in place and that companies have always had to abide by (except for one) but now you are expected to detail these.
The headings for your cost reporting are:
- Project staff costs
- Externally provided project workers
- External subcontractor costs
- Software used
- Consumable items
- Payments to participants of a clinical trial
- Data licence costs
- Contributions to independent R&D costs
- Cloud computing services, including storage (becomes eligible for projects taking place on or after 1 April 2023)
This means that your project accounting needs to be accurate, and you need to ensure that you’re using analysis codes correctly and that employees are properly recording costs.
Remember though that depending on whether you are applying for SME R&D Tax Relief or the Research and Development Expenditure Credit (RDEC) there are different rules as to what constitutes qualifying expenditure.
In addition, you will need to identify what is included for indirect qualifying expenditure and these must not include spending on cloud computing or data licensing.
Information about your company
The new requirement for your company details we can see as clear signs that HMRC is collecting this data as a way of crosschecking other claims that are in their system.
The information you need to provide is:
- Your company’s United Taxpayer Reference (UTR) number
- Your employer PAYE reference number
- Your VAT registration number
- Your business type, for example, by providing its current SIC code
- Contact details for the main senior person at your company responsible for your R&D claim
- Contact details for any agent that helped you prepare your claim, for example, your R&D Tax Relief specialist
None of this is earth shattering and it should be a simple matter to include, but we can presume that the name of any agent is required so that HMRC can assess a claim on the basis of whether it has been submitted with the help of dubious consultants.
It has also been noted in the industry that the SIC code allows HMRC to target specific sectors and sub-sectors with investigations if they feel that fraudulent claims are clustering.
How to submit the new information
The R&D tax claim process has a new form, and we are sure that business owners will delight in the requirement to complete yet another HMRC form.
The imaginatively titled ‘additional information form’ is a method of collating all of the new information in one place and, we assume, scanning it straight into the HMRC systems.
The form must be submitted before your corporation tax return otherwise the taxman will strike out your entire claim and you will end up paying the full gross amount of corporation tax.
The Rocking Horse view
We applaud HMRC for doing something about the appalling levels of fraud that it is experiencing. However, once again innocent business owners are being forced to carry out tasks that might not be needed, if HMRC ran a consolidated tax system.
The extra information required will undoubtedly trip up applicants, especially where they haven’t engaged the services of a professional R&D tax credit agent and so we could see a spike in rejected claims.
It is clear that HMRC will also be doing some level of checking on the information submitted which naturally means that claims will be delayed even more. Add to this the already extensive delays, not only in the R&D tax credit section but across HMRC generally and we can see that a lot of businesses are going to be waiting much longer for the benefit of their R&D tax credits.
Don’t want to wait?
If you have R&D tax credit qualifying costs, even if you haven’t submitted a claim yet, then you could be eligible for the Rocking Horse innovative R&D tax credit advance funding solution.
Contact us now and we’ll explain how we can give you a working capital boost.