Almost half of R&D claims lack compulsory formby
Research and development relief claims now require an additional information form to be completed. Emma Rawson looks at what this involves, and why so many may have missed the requirement so far.
Since 8 August 2023, all research and development (R&D) tax relief claims need to be accompanied by an additional information form (AIF). However, HMRC has said that in the period to 3 September 2023, almost half of all claims did not include an AIF.
So what is the AIF, why is it important, and what might be driving this surprising level of non-compliance?
What is the AIF?
The AIF was first announced at the Autumn Statement 2021 as part of a package of measures to target abuse and improve compliance in the R&D regime. It was hoped that, by having additional information in a standard format, HMRC’s overstretched R&D compliance teams might be better able to identify and target potentially problematic claims.
The AIF is now compulsory for claims under both the SME and R&D Expenditure Credit (RDEC) schemes. It is an online form that can be completed by both agents and taxpayers. Crucially, it needs to be submitted before the corporation tax return in order for any R&D relief claim to be valid.
The AIF requests a range of information, including standard details about the company (unique taxpayer reference, accounting period and so on) and breakdowns of qualifying expenditure. Detailed information needs to be provided about projects undertaken in order to demonstrate why they qualify as R&D in the first place. Any agent involved in the R&D claim also has to be named, alongside a specific contact in the claimant company who takes responsibility for the claim.
The full range of information required is set out in HMRC’s guidance, and it is worth going through this in detail before submitting an AIF. The R&D reports provided by most reputable specialists should contain the majority of the necessary information, but these may not always be in the required format, meaning some extra work may be needed.
What happens if an AIF isn’t submitted?
If an AIF is not submitted before the corporation tax return is filed, HMRC will remove the R&D claim from the return on the grounds it is not valid.
The first HMRC letters advising companies and their agents of removed claims are currently being sent out. You can find copies of these on the Association of Taxation Technicians (ATT) website.
Where a claim is removed, if the company is still in time they can amend their return to reinstate it (once they have submitted an AIF). However, if the company is close to the end of the two-year amendment window, there is a risk that they could lose their ability to claim entirely.
Why the low compliance levels?
The high numbers of claims submitted without an AIF to date have taken many by surprise.
As with any new requirement, a lack of awareness is likely to be a driver. Busy agents and their clients may have simply missed the fact that an AIF is required, especially as there is nothing to stop them filing the corporation tax return without one. However, HMRC has indicated that there was a significant spike (10 times the daily average for the month) in R&D claims submitted on 7 August, indicating that many taxpayers and agents were aware of the requirement and filed earlier to avoid it.
Another factor could be confusion over the exact date the AIF became a requirement. Originally, it was announced that the AIF would only be required for accounting periods beginning on or after 1 April 2023. However, this was then brought forward to all claims (regardless of accounting period) submitted from 1 August 2023, before finally being pushed back by one week to 8 August 2023. All these changes are likely to have caused confusion, especially bringing the requirement forward and changing from a start date based on accounting period to one based on date of claim.
Finally, in some cases it may be that work on an R&D claim was completed well in advance of 8 August, with the assumption that the corporation tax return would be filed shortly afterwards. If filing of that return was unexpectedly delayed until after 8 August (for example due to delays in signing off the accounts or getting other information from the client), the failure to submit an AIF could well have been a simple oversight.
To avoid the extra hassle of amendment, and the possible risk of losing a claim entirely where the amendment window is closing, it’s important to ensure that an AIF is submitted before any R&D relief claim.
The AIF can be submitted by the company itself, the agent filing the CT return or any R&D specialist advising on the claim. It’s therefore important to agree upfront with clients who will be responsible, and arrange for the required information to be available in plenty of time. As a further safeguard, you may wish to reflect whatever is agreed in engagement letters and communications to clients when asking them to approve returns.
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Emma a technical officer with the Association of Tax Technicians (ATT). Her background is in corporation tax and she also has a focus on VAT.
She trained with Deloitte, working in both their London and Leeds offices, and also spent a short time working in a specialist consultancy firm providing advice to other practitioners before joining...