What does HMRC’s new guidance for R&D tax relief mean?

5 December 2023

Through sampling and assessment of hundreds of R&D claims, HMRC have discovered around half of all claims have an element of non-compliance. Because of this, new guidelines for compliance (GfC) were issued in October 2023.

The GfC explains what HMRC expects from applicants, and contains new examples of how guidance from the Department of Science, Innovation and Technology (DSIT) can be used to determine successful applicants and reduce non-compliance.

There’s a lot of reading to do. DSIT guidance is approximately 4,300 words and the GfC adds a whopping 10,500 words. We’ll summarise the key points here to help your application for R&D tax credits.

key points

  • Be prepared – The GfC makes it clear that HMRC expects applicants to do lots of preparation before you make a claim for R&D expenditure. The process is broken down into 13 steps. Of these, the first nine are expected to be taken by: ‘A competent professional, or competent professionals, in the relevant field of science and technology’. Once these steps are completed, ‘The company or its agent should then, supported by a competent professional as needed’, complete the last four steps.
  • The importance of the competent professional – In part 3 of the GfC, a competent professional is described as ‘someone suitably qualified or experienced in the field. Usually this is someone directly involved in the project with professional expertise relevant to the advance being sought… Having worked in a field or having an intelligent interest alone, do not make a person competent or professional.’ Some claims have been rejected because the competent professional doesn’t have enough knowledge or experience specifically relevant to the project a business is trying to get qualified.
  • Examples are used for key terms – The longest section of GfC – part 4 – contains many examples of key terms related to the definition of R&D. While lengthy, these examples should make DSIT guidance easier to understand:
    – how to define a project
    – why the use of technology doesn’t automatically constitute as R&D.
    – which activities constitute as R&D.
    – when unoriginal work might qualify.
    – when R&D is considered to start and end.
  • Prenotification rules – Accounting periods starting on or after 1 April 2023 are subject to stipulations that companies have to inform HMRC they intend to claim R&D tax relief, if they haven’t made a claim within the three-year period ending six months after the last date of that accounting period. There’s also a reminder that any claims submitted on or after 8 August 2023 are subject to completing an Additional Information Form (AIF).

    takeaways from the new R&D guidance

    It’s clear from the comprehensive guidance in the GfC that you need to do some serious reading up before you make a claim for R&D tax relief. HMRC say the responsibility of your claim will rest with the applicant, not your advisor. Blaming poor advice won’t help you to avoid a penalty if your claim doesn’t pass muster.

    You’ll also need to consider whether you have what HMRC consider to be a competent professional in the area you’re wishing to claim an advance in. Without one, your claim won’t get far.

    Ultimately, the GfC will most likely significantly reduce the overall number of R&D claims and ensure the remaining claims will be more compliant.

    If you’re not sure you’re eligible for an R&D claim, check out our advice. Or to speak to professional R&D experts, get in touch with us by email or phone 0116 490 0279 today.