R&D changes – what does it all mean?

HMRC has some significant changes in store for its Research and Development (R&D) claims process. However, our very own specialist Michael Stead, who has immersed himself in R&D for over 20 years, is here to explain what these changes mean, and how we at BAND are well prepared.

Q: Michael, what are the key changes to expect from 1st August 2023?
A: The most significant change is that HMRC will require all submissions to be in a digital format and these digital forms will request additional details upfront. The aim of these changes is to allow HMRC to optimise its return on investment, so they’ll want to know in advance that you’ll be making a claim and what the basis of your claim is.

The additional detail required will include: the business type by Standard Industrial Classification (SIC) code, and additional project details for the projects you’re claiming for in that accounting period, as outlined below. If you’re claiming:

• 1 to 3 projects, you’ll need to describe all the projects you’re claiming for that cover 100% of the qualifying expenditure
• 4 to 10 projects, you’ll need to describe those projects that account for at least 50% of the total expenditure, with a minimum of 3 projects described
• 11 to 100 (or more) projects, you’ll need to describe those projects that account for at least 50% of the total expenditure, with a minimum of 3 projects described — if the qualifying expenditure is split across multiple smaller projects, you’ll need to describe the 10 largest

HMRC will require the form to be submitted before your tax return. If it isn’t, they’ll write to you to let you know that they’ve removed your claim from your return. There’s no going back!

Q: What’s prompting HMRC to alter its approach to R&D claims?
A: The primary catalyst was criticism from the House of Lords regarding HMRC’s handling of fraudulent claims. Also, as we potentially near the end of a government cycle, HMRC is keen to show its diligence, hence a tightened claim criteria. Specifically, HMRC aims to curb the number of businesses exploiting the R&D Tax Credit self-assessment scheme. As part of this effort, they’re reported to have employed over 100 additional caseworkers to vet claims more thoroughly.

Q: So, how will this affect businesses making claims?
A: These changes are already leading to more businesses, including established ones, facing claim enquiries. Even seasoned claimants are finding the process challenging. But it’s not all bad news. If you’ve been following the proper methodologies, like we do at BAND, you’re in a good position. I find that the key is to explain your R&D project as if you’re talking to someone with no technical knowledge – like describing what you do to a friend’s grandma at a Christmas party!

Q: What exactly is HMRC looking for in an R&D claim?
A: They want to understand your baseline – the starting point from which you seek to advance in your specific scientific or technological field. They’re also interested in the precise goal you’re striving towards.

Q: How is BAND prepared to handle these changes?
A: The good news is that the changes HMRC is making to filter out less scrupulous claimants align with our existing practices at BAND. We already have the required reporting structure in place and ask the right questions when interviewing clients. Additionally, we’ve been piloting record-keeping strategies with some of our larger clients to comply with HMRC’s requirements for contemporaneous record-keeping. This detail is more critical than ever in the face of an enquiry.

Q: How should clients approach these changes and the R&D claims process in general?
A: Our approach at BAND encourages clients to view R&D as a strategic asset and use successful claims to reinvest in innovation. Rather than seeing us as a once-a-year partner, we urge clients to consider us as strategic allies, helping them stay ahead of the game. Despite the increased scrutiny of claims, there’s no need for doom and gloom. Yes, the process is becoming more challenging, but you can achieve significant benefits with the right approach.

About Michael Stead:
With over 25 years in research and development roles, Michael Stead is an R&D tax credit scheme veteran. His extensive experience spans a diverse array of sectors, from engineering and automotive to more niche areas like women’s footwear and life rafts. This versatility enables him to engage effortlessly with experts across industries, providing a tailored approach to the R&D tax regime.

Read more about the R&D changes