Accountants are worried about R&D tax relief changes – but it is still worth the effort

Recent changes to R&D tax relief represent a minor revolution in working practices for accountants — and the next few months are going to be a big adjustment.

The changes have largely been brought about as a result of HMRC’s crackdown on fraud and error, and put evidence and accountability in claim submissions at the forefront of compliance efforts.

However, HMRC’s approach to compliance has been heavy-handed at times. Accusatory letters have been sent to many companies seemingly at random, and questions are being asked about matters that are addressed in the initial claim report. Unfortunately, this is all having a chilling effect and making some accountants nervous about dealing with R&D.

What are the changes?

To start with, for accounting periods beginning on or after 1 April 2023, companies will need to let HMRC know in advance if they intend to make a claim. This change to the legislation represents the biggest hurdle, as it requires accountants to have much earlier conversations with clients about any R&D work they may want to claim for in the future.

All claims with effect from 1 August 2023 need to be submitted digitally, including all details of qualifying activities and costs. Claims must be signed off by a senior named officer at the claimant company, as well as identifying the submitting agent.

These measures mean submissions will take a lot more time.

For example, the new prior notification requirements mean that for accounting periods starting on or after 1 April 2023, first-time R&D claimants and any companies that have not made an R&D tax relief claim in any of the previous three years (looking back from the deadline to notify) will need to notify HMRC in advance of their intention to submit a claim.

To do so, they will need to fill in a Claim Notification form within six months from the end of the accounting period for which the claim is to be made.

Yet we still don’t know if a new form would be required if changes occur before the claim is submitted, for instance if there is a change to the period of account dates.

The form also asks for details of an ‘agent involved in the R&D claim’. However, in instances where an accountant works with a specialist to write the report, it is not clear who is supposed to be named.

How is this impacting accountants?

The prospect of an increased workload and added pressure means there are some accountants wondering if it is worth the hassle.

But for the claimants themselves, R&D tax relief remains generous — especially for larger companies. Innovation, and the accompanying relief, will continue to be central to many of their growth strategies, and they will want to work with advisers that are happy to assist them with these claims alongside their other tax needs.

This isn’t the end of the changes, either. The Government wants to combine the SME and RDEC schemes into a single programme for all companies regardless of size. In the long-run this should make the system simpler, but it will be yet another big adjustment.

These upcoming changes will be hard, but will ultimately be for the better if they do reduce fraudulent claims. And as R&D tax relief will still be in many companies’ plans, it is imperative that accountants don’t give up on assisting and advising with claims.

Working with a specialist may help accountants deal with the extra time implications that come with the requirement to submit more detailed reports. Legitimate tax relief consultancies have always produced extensive reports that supply all the background to a claim in detail and explain how the qualifying costs interact with the legislation. They also know the legislation inside and out, and can ensure everything is submitted correctly.

Nigel Holmes is a Director of Tax at innovation funding specialist Catax (a Ryan company). He can be contacted at Nigel.Holmes@catax.com