There were a number of proposed changes relating to the R&D scheme in the Autumn budget 2021. In the Autumn HMRC published their proposals and launched the consultation process to seek feedback on the proposed changes.
Feedback to the Research and Development Communication Forum
The Research and Development Consultative Committee has had a name change and is now known as the Research and Development Communication Forum.
GovGrant joined the most recent meeting on 8 December during which HMRC went through the proposed changes and answered initial queries.
We have provided our feedback together with the CBI which can be read here.
The government will now consider all responses and then in the summer of 2022 will release its draft bill. This will then almost certainly be passed into law, within the Finance Bill 2022-23 in the Autumn/Winter of 2022. The new legislation is then expected to come into effect for claim periods starting from 1 April 2023.
Based on the interactions we have had with HMRC during the RDCF and other round table events so far this year, we have summarised what we believe the likelihood of each of the proposed changes will be below and what it is likely to mean to our clients.
Data and cloud computing costs
To date these are non-qualifying costs, so we welcome the recognition of the vital role these costs play in many R&D claims today. We think it is inevitable that data and cloud computer costs will continue to grow in importance. The proposal is to allow these costs that are relevant to the R&D activity and this will almost certainly go ahead.
Although we are still waiting for clarification from HMRC on the specifics, we believe the criteria will be very similar to the current consumables’ requirements. The devil will be in the detail as to how HMRC defines relevance to the R&D activity and how any tests are to be met, particularly when it comes to ongoing value of the data to the business after the R&D project has been completed.
The proposal is to exclude all costs relating to activity that has taken place outside the UK, both for subcontractors and EPWs. For EPWs to be in scope they must have been paid via the UK payroll of the staff provider or service company.
HMT are open to exclusions where, for example, it was not possible to carry out that work in the UK. We, together with CBI, are pushing further so as not to stifle global collaboration or inadvertently have a detrimental impact on the UK economy by excluding the UK entities leveraging overseas centres of excellence.
Abuse and compliance
According to the National Audit Office, it is estimated that £311m is claimed either fraudulently or erroneously. HMRC announced several proposals to address this issue.
- All R&D claims must be made digitally (postal or email no longer accepted).
- All claims must include a technical report that evidences the technical compliance together with an expenditure breakdown of the costs claimed.
- Each claim will need to be endorsed by a named senior officer of the company. We, together with many others, have challenged this. The claim is made via the company’s tax return which already has a legal requirement to be signed of by a company director – so in our view, this doesn’t add any value or prevent fraud but just creates duplication.
- Companies will need to inform HMRC, in advance, that they plan to make a claim. We, together with many others, have strongly argued against, as it could lead to companies registering to make a claim ‘just in case’.
- Claims will need to include details of any agent or anyone who has advised the company on making the claim. Another welcome change on our part – this should make it far easier for HMRC to identify those who continuously abuse the scheme. We came across one firm recently where HMRC took action and wrote to over 300 of their clients informing them that as they had used that R&D advisor they needed to re-submit their claim.
Contact us to find out more about these changes might impact you or your business.