R&D tax relief expert David O’Keeffe outlines tips for potential claimants on how to put together a robust claim and get paid faster at the end of it.
My experience is that HMRC is not enquiring into a greater number of R&D tax relief claims, but it is taking longer to process those claims.
Speed is of the essence
When you submit a claim for R&D tax relief, especially if it is a claim for a payable tax credit, you want HMRC to process it as quickly as possible. To be fair to HMRC, it does do a pretty good job, but the number of claims submitted is rising and resources at HMRC are limited. Anything that can be done to make it easier for HMRC to process your R&D claim efficiently is clearly worth the effort.
Prepare a robust claim
Start by making sure that the claim has been well prepared and the HMRC officer will easily be able to see that the company has undertaken qualifying R&D. The technological advances and uncertainties should be clearly and concisely described, and the relevant costs clearly analysed.
While you don’t want to leave any qualifying activity or eligible costs unclaimed, it’s equally important to ensure you don’t include items that simply won’t qualify.
This is particularly relevant where a claim is being made after the company has filed its CT600, necessitating an amendment to the return. In the past, HMRC has been willing to accept such claims by post or email and to treat that as an amended return, as long as there is sufficient information for it to make the relevant amending entries in its COTAX system. This has, on occasion, led to delays in processing the claim.
HMRC has now changed the basis on which it will accept claims that are not filed online through the government gateway.
From 1 April 2019, all amended claims for R&D relief or R&D expenditure credit (RDEC) which are not made online through the government gateway must be supported by a CT600. This CT600 must include a declaration, along with relevant tax computations and, if not already provided, the company’s accounts.
As long as all of that is included, the claim and other documents can still be submitted as attachments to an email. If the company is intending to complete the R&D online form (see below) then this should be stated in the covering letter or email.
Failure to follow this new requirement will result in the filing being rejected and HMRC will notify the company (and its agent if relevant) in writing that a valid amended return has not been made.
HMRC recognises that some claims are submitted very close to the filing deadline. As a transitional concession, until 30 June 2019 where a filing is returned as invalid, HMRC will accept a subsequent submission (in the correct format) up to 30 days after the date of the HMRC letter even if this is past the statutory deadline. The resubmitted claim must be in the same amount as the original rejected claim.
R&D online form
HMRC has launched an online form that can be completed to support a claim for SME R&D relief (RDEC version is due for release later this year). The form is submitted via a government gateway account and asks for the qualifying costs split between employees, externally provided workers (EPWs), subcontractors, software, consumables and payments to clinical trial volunteers.
Then the form asks for information on qualifying projects. For each project there is room to enter information on the advances, the uncertainties faced and the work done to overcome those uncertainties.
HMRC is encouraging companies to use this online form, but it is not compulsory. It is still possible to submit an R&D claim in the ‘traditional’ paper manner. Indeed, the form cannot be submitted until after the CT600 (amended, if appropriate) has been submitted.
I’m not yet convinced by the usefulness of this online form. There is limited space for explanation of the advances, uncertainties and the work done. Furthermore, if the company has a large number of qualifying projects then it may not be possible to use the online form.
Also, I’m not persuaded that this online form provides good value to HMRC. It does present the information to HMRC in a standardised and concise manner, but it doesn’t permit sufficient explanation of the R&D undertaken, nor does it provide support for the costs included.
In practice, I believe this online submission is likely to lead to HMRC requesting further information to support the R&D claim, which seems to defeat the objective. Of course, a proper claim is going to have to be prepared first in order for the online form to be completed, so why not submit that instead (or, even, as well)?
Include BACS details
If the claim is for a payable tax credit, including the company’s banking BACS details with the claim will speed up the payment process once the claim is passed.
HMRC aims to pay 95% of SME credit claims within 28 days, although it is currently not achieving that target. Where the company has not included its BACS details, HMRC suggests that this delay can rise to 60 days.
About David O'Keeffe
I am an independent specialist adviser on the taxation of innovation, advising companies and other advisers on R&D tax relief, Patent Box and Creative Industry reliefs.
I have been involved with the UK’s R&D tax relief regimes since the initial consultations on the introduction of the SME relief. In that time, I have developed an enviable level of knowledge of R&D tax relief both from a technical and a practical perspective. I established KPMG’s specialist R&D tax relief team and was a founder member of KPMG International’s Global R&D Tax Incentives Group and was a member of the Steering Group, with direct responsibility for the EMEA region.
I have provided input and consultation to many organisations and trade bodies. I was the only R&D tax specialist to have input to Sir James Dyson’s influential 2010 report "Ingenious Britain: Making the UK the leading high tech exporter in Europe" which is seen as the catalyst for reform of the UK’s R&D Tax Relief regimes. I have been a member of HMRC’s R&D Consultative Committee, a group with representatives from Government (HMRC, HMT and BIS) as well as industry, advisers and professional bodies, since its inception. I sit on CIOT’s CT technical Sub-Committee and chair the R&D Working Group of that sub-committee.
I was involved with the consultation process leading to the introduction in 2013 of the UK’s patent box regime. Since then I have helped his clients assess the merits of making a patent box election and then, where appropriate, to claim the benefit of the relief. More recently, I have actively contributed to the consultations around the design of the changes to the UK’s patent box to make it compliant with the OECD’s nexus requirements.
Formerly a Tax Partner with KPMG LLP (UK), I retired in 2011 to establish Aiglon Consulting.