R&D tax credit pre notification – advice for companies

The UK government recently introduced a new notification rule for Research and Development (R&D) tax relief, requiring companies to pre-notify HM Revenue and Customs (HMRC) of their intention to submit an R&D tax relief claim. This new legislation will be applicable for accounting periods starting on or after 1st April 2023 and will apply if a company is new to R&D tax relief or has not claimed within the last three years. Although the purpose of this rule is to increase openness and enable more efficient claim processing, it has a number of drawbacks that companies should be aware of.

The introduction of this new legislation poses three areas of concern:

Red tape and increased administrative burden

For businesses looking to claim R&D tax relief, the new pre-notification requirement adds another layer of administrative work and red tape. Businesses now have to navigate the procedure of pre-notifying HMRC within six months of the end of their accounting period in which the R&D took place. This is in addition to the existing documents and information needed for the claim itself. For smaller businesses or those with less internal resources devoted to managing tax matters, this additional administrative step can be time and resource intensive.

Risk of ignoring pre-notification

With the pre-notification legislation now in place, there is a chance that businesses won’t remember to comply with it within the allotted time. Companies who fail to pre-notify HMRC within the allotted six-month period risk losing the chance to claim R&D tax relief for legitimate research and development activity.

Impact on companies unfamiliar with the legislation

The introduction of a six-month deadline negatively affects companies who were unfamiliar with what constitutes qualifying R&D activity. Even if they performed activity that would be eligible to include in a R&D tax credit claim; if the company realised this seven months after the end of their accounting period, they would not be able to submit a claim, even though the claim would be robust and contain all the necessary information that would warrant HMRC approval.

Matthew Jones

Managing Director

Matthew Jones, Managing Director at LimestoneGrey commented:

Matthew Jones, managing director, LimestoneGrey, chartered R&D tax credit consultancy

It is unfortunate for companies that this rule has been brought in as it adds additional administrative burdens to an already long list of statutory business requirements. Despite this fact, affected companies need to ensure plans are in place to deal with this instruction.

It is of paramount importance that if your company is:

  1. Developing new products or services
  2. Making appreciable improvements to existing products or services

you become familiar with the eligibility criteria for R&D tax credits. This will ensure that you can spot any potential qualifying activity during the project, providing you with sufficient time to make your pre-notification. LimestoneGrey offers free consultations to equip you with the information you need to make internal assessments during your project and can be on hand to discuss activity to determine its eligibility. If a company then decides to pre-notify, we can assist with the process.

If your company believes it undertook activities that would qualify for R&D tax credit relief but will not have the time to verify the fact within six months of the year end due to other company priorities, my advice would be to submit the pre-notification to allow you the time to engage with an advisor before your submission deadline to validate if a claim is available.