How has the new R&D tax credit Additional Information Form impacted claim submissions?
The 8th of August 2023 marked the delayed introduction of the new R&D Additional Information Form (AIF) and with it, significant changes to the way R&D submissions are to be made. Without the AIF, claims are invalid and instantly rejected by HMRC.
The AIF is now a requirement for any company making an R&D claim under either the SME or RDEC scheme and can be submitted by the company, by a representative of the company or by the company’s registered tax agent. The form must be submitted before the submission of the company tax return, otherwise the R&D claim will be removed from the CT return. It is imperative to note that the form must be completed for all claims being made after 8th August, irrespective of the company’s year end.
Why was the R&D tax credit additional information form introduced?
The implementation of the new form is HMRC’s attempt at combating three main areas of concern:
- Fraudulent and non-compliant R&D claims;
- Unscrupulous agents; and
- HMRC administrative time spent on reviewing R&D claims.
It was published earlier this year that the level of ‘error and fraud’ in claims for R&D tax credits, consisting of both SME and RDEC, for 2020-2021 was 16.7%, equating to £1.13 billion in tax relief. However, this statistic has been criticized due to lack of supporting evidence and the fact that there is no split between genuine error, that can be rectified, and fraudulent behavior; two very different scenarios. It is also likely based on HMRC’s new draconian interpretation of subcontracted activity, deeming many previously valid claims as now being inaccurate, a view which is likely to be challenged in the courts in the near future.
So how will the R&D tax credit AIF help with this?
Aside from fraudulent cases, the absence of an R&D tax credit report structure meant that each and every claim submitted to HMRC had its own format, leading to missing, irrelevant or frequently, no technical detail supporting the claim, making the review process problematic and time consuming.
The objective of the AIF is to standardise the format in which claims are made and force companies to provide the technical detail needed to support the expenditure claimed.
By specifying the content required, HMRC hope to vastly improve the transparency, accuracy and compliance of each R&D tax credit claim and in turn, take a huge step in battling fraud and non-compliance of the scheme.
Re-affirmed stance on technical details of R&D projects
The introduction of the AIF has also allowed HMRC to re-affirm their stance on the number of projects a company needs to include in their R&D tax credit report, which historically has tended been ignored. If a company is claiming:
- 1 to 3 projects
They need to provide detail on all projects being claimed in the period so that 100% of the qualifying expenditure is covered
- 4 to 10 projects
They need to provide detail of those projects that account for at least 50% of the qualifying expenditure (subject to a minimum of 3).
- 11 or more projects
They need to provide detail of those projects that account for at least 50% of the qualifying expenditure, with a minimum of 3 projects described. If the qualifying expenditure is split across multiple smaller projects, you need to describe the 10 with the most qualifying expenditure.
This is to ensure that R&D activities undertaken are sufficiently and effectively captured and presented to HMRC for approval.
Third party agent details
The inclusion of third-party agent details will hopefully discourage unscrupulous and unregulated agents from pressuring companies into making non-compliant R&D claims.
Matthew Jones, Managing Director at LimestoneGrey commented:
We are now over eight weeks on from the introduction of the R&D tax credit AIF form. So what has changed?
It is reported by the ICAEW that since the implementation of the AIF, roughly 45% of claims received by HMRC did not include the form and have therefore been rejected without any consideration of the actual R&D taking place. As mentioned above, any claims made without the AIF are invalid and instantly rejected.
HMRC have written to those firms affected and those that are fortunate enough to be within the amendment period, are able to file the form and submit the R&D claim again. However, those that are outside of the amendment period, have lost the chance to claim. This is likely to have a huge impact on a significant number of claimants, especially smaller companies and those that need the cash injection, particularly after a difficult few years.
Of course, the new system doesn’t come without its teething issues, most notably an error on the CT600 preventing some companies who are submitting an RDEC claim from making entries in boxes 655 and 657. Where this is the case, HMRC have advised that no entries should be made in boxes 655 and 657 and instead, details should be left in the white space making note that the AIF has been completed. It is reported that work to rectify this issue will be made in April 2024.