R&D Communication Forum (RDCF) Highlights – December 2023
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HMRC recently held a R&D communication forum (RDCF), and, given the current state of the R&D tax relief schemes, it was a biggie! The session covered a wide range of topics, focussing on all of the many and various changes that have been and will be introduced.
Having watched closely (more than once!) here’s our highlights and tips about the changes – there’s a lot to get through!
April 2024 changes
HMRC provided a little more clarity on the merged scheme and associated changes coming in for claim periods starting on or after 1st April 2024. Most of these were fairly minor, and included:
- Further confirmation that claims under the R&D Intensive SME still cannot be submitted – the legislation is still to get Royal Assent. This is expected in the new year, and any claims made up until this point can be amended to reflect the incoming rules.
- Confirmation that Advanced Assurance will be available for both the R&D Intensive SME scheme and the merged scheme.
- Confirmation that, in some cases, the benefit available through the merged scheme will be greater than that through the R&D intensive SME, and it will be up to the claimant company to recognise this and decide how to claim.
More importantly, HMRC did cover the changes to the subcontracted R&D rules and how these might be applied in practice, ahead of the publication of their updated guidance. For reference, for claim periods starting on or after 1st April, R&D will only be seen as ‘contracted out R&D’ if a supplier is contracted to do work for a customer, and it is ‘reasonable to assume’ that the customer ‘intended or contemplated’ that R&D would be needed to meet the obligations of the contract. If the reasonable assumption criteria are not met, then the supplier can claim.
As you can imagine, this change, and the wording of the legislation, has caused some confusion as to how this would work, and how advisors, claimants and HMRC would judge whether a piece of work could be claimed by the customer or the supplier. HMRC sought to give some clarification on this, and provided a list of the types of things that will need to be considered when making that decision. These include:
- The wording of the contract;
- The nature of the work;
- The trades of the customer and supplier;
- Communications between the customer and supplier when drawing up the contract;
- How the contract is priced;
- The likelihood that the supplier or the project would require R&D to be carried out.
Fundamentally, HMRC would want to see that the customer has more than a belief that R&D would be needed – they want to see the customer deliberately initiating the R&D in some way. HMRC also stated that contract terms would not override all other considerations, so inserting blanket terms about R&D ownership into contracts would not automatically allow the customer to claim for the work.
The last key point that about these changes is that they will only apply to accounting periods starting on or after 1st April 2024. While this is understandable, this will lead to extra complexity for the next few years, as, for example, claimants and advisors prepare claims where projects may be ineligible for both customer and supplier for accounting periods starting before 1st April 2024, and the eligible for one or other for periods starting on or after 1st April 2024…
Compliance and enquiries
As expected, a significant amount of time was spent covering issues related to compliance and enquiries, with some clarifications on enquires offered alongside the announcement of new measures to reduce fraud and error in the sector.
These new measures include:
- A new R&D disclosure facility, to enable companies to correct timed-out R&D claims;
- A professional bodies mailbox to enable members of professional bodies to report breaches in R&D tax relief preparation standards, and;
- A new R&D Agent Compliance Management Team. This team will work with, on an invite-only basis, agents to address key issues with their claims and practices. Selected agents will be given training and assistance in making improvements. HMRC were clear that this is not accreditation.
Alongside this, several of the questions submitted to the RDCF concerned the enquiries process and the behaviour of caseworkers. HMRC stated:
- It is the job of the competent professional to articulate the advances made in a project – caseworkers should not be making definite judgements on whether work done constitutes eligible R&D. All they can say is that the work has not been described in a way that fits the criteria.
- HMRC are happy that ‘correcting’ tax returns to remove R&D claim is a legitimate way to deal with invalid claims. If companies disagree, they can resubmit an amended CT600 or write to reject the correction.
- All case workers have now received appropriate training and can access peer coaching and assurance.
- HMRC assured advisors that if they feel that an enquiry is being handled badly, they can call HMRC and speak to a case worker. Companies can also request an independent review.
Additional Information Form
Finally, HMRC spent some time sharing some statistics about the use of the AIF, along with answering some questions about how the information gathered might be used.
Key points included:
- The overall failure rate for claims due to non-submission of an AIF is 22%. The failure rate in August was around 50%, and this dropped to 19% in November
- 54% of failed claims have been resubmitted so far.
- HMRC also received 240 objections to claims being removed due to non-submission of the AIF. Of these, 79 were accepted, 118 rejected and the rest are still to be processed.
- HMRC plans to update the AIF to deal with both the R&D Intensive SME scheme and the merged scheme.
- Confirmation was given that an AIF is not needed if an amended CT600 Is submitted where the amendments do not relate to the R&D tax relief claim.
- HMRC also confirmed that the ‘other agents’ listed in the AIF should include any agent has worked on the claim, including whoever submits the CT600.
If you’d like to know more about how WhisperClaims is helping accountants to deliver R&D tax claims more effectively, why not join one of our regular App Showcase webinars or book a personalised 1-2-1 demo