Hazlewoods Innovation team offers insights into two key changes introduced by HMRC in 2024 to clamp down on error and fraud in the R&D market.

The R&D tax regime has seen an ever-changing landscape in recent years with increasing activity in legislative changes and landmark cases.  Introduced to target compliance issues, errors and abuse, as we enter 2025, are we nearing an end to all the commotion?

New Disclosure facility

On 31 December 2024, HMRC quietly introduced the R&D Disclosure Facility, an online form designed to simplify the process for companies and their tax agents to voluntarily disclose errors and inaccuracies.

Use of this facility will be appropriate when the following has occurred:

• A company has claimed too much R&D relief;
• The R&D claim in question cannot be corrected by amending the company tax return, as the time limit has passed; and
• The company's behaviour was not deliberate.

If the Company is within the time limit to submit amended corporation tax returns, then it should do so, rather than using this service. HMRC will place increased reliance on this facility, and interest and penalties will be charged if companies wait for HMRC to make contact.

HMRC have stated that the disclosure process is straightforward, submitting an online form along with the company's calculations. The form includes a 'letter of offer' for settlement of errors and inaccuracies. If additional tax is owed and the company cannot pay in full, the service allows for a request for more time, payable within 12 months.

As the facility is restricted to the above conditional use, HMRC may experience less take up and use of the facility than expected. However, the facility does demonstrate a continued focus from HMRC on strengthening compliance efforts albeit with the emphasis of responsibility falling on the taxpayer.

Claim notification process

For accounting periods starting on or after 1 April 2023, companies must notify HMRC within six months of the end of the accounting period if they plan to claim R&D tax relief. This new requirement targets companies claiming R&D relief for the first time or those who have not submitted a claim in the three years prior to this notification deadline.

Previous claimants that have submitted a claim in the last three years, will need to identify whether the submission was within the original corporation tax return or an amended corporation tax return.  Amended returns for periods prior to 1 April 2023 filed after 1 April 2023 will not qualify as a submission for the purposes of identifying whether a claim notification is required.

The claim notification form can be submitted by the company or its tax agent and requires details of the UTR, the accounting period, company and agent information and most importantly a summary of the R&D activities.

It is critical that the company evaluates whether a claim notification is required. If notification is not made when required, the company loses the right to make a claim for the period. This is an ongoing requirement, so, all companies but in particular, irregular claimants will need to ensure they do not fall outside of the rules.

What’s ahead for 2025?

So can we expect a more stable 2025? Hopefully the answer is yes but the Government have announced a consultation for Spring 2025 to review the Advance Assurance process for R&D relief. This initiative will gather input from a diverse range of stakeholders, including businesses and tax advisers, to explore effective implementation of strategies and solutions.

In its current form, Advance Assurance is a voluntary application process allowing certain companies to submit details of their R&D work to HMRC before claiming R&D tax relief. If approved, HMRC guarantees the projects disclosed will be accepted, provided it aligns with the agreed application. However, its usefulness is limited, so it has always been under-utilised. New data recently published in Taxation magazine suggests that in 2018-19, 205 applications were made compared to 86 applications in 2023-24. Of these applications, 67% were accepted in 2018-19 compared to only 29% in 2023-24. This is a strong indicator that either positive change to the process or removing the option altogether is necessary to improve communications between the taxpayer and HMRC or to redirect HMRC resource where it is most needed.

The R&D tax incentives landscape is now very different to what most companies had become familiar with.  There is certainly an increased administrative burden to remain compliant. 

Whether you are a first time claimant or have obtained tax relief in the past, we recommend seeking up to date advice from a trusted tax adviser to ensure that you don’t inadvertently fall foul of the new R&D regime and miss out on valuable incentives designed to innovate and grow in difficult economic times.

For more information on the above and on the other recent changes to R&D tax relief, please contact the Hazlewoods Innovation Tax team below.

Jemma Vaughan: jemma.vaughan@hazlewoods.co.uk

https://www.hazlewoods.co.uk/expertise/by-sector/innovation/rd-tax-incentives/