Starting from 8 August 2023, there are important changes to filing an R&D claim. Companies must now submit an Additional Information Form as supporting evidence for their R&D claim before filing their Company Tax Return, as mandated by HMRC.
Closer scrutiny of direct and indirect activities
Under the new filing process, HMRC requires claimants to differentiate between qualifying direct activities (QDA) and qualifying indirect activities (QIA). Previously, the claim report included all qualifying activities without requiring a distinction. Now, it’s crucial to specify which costs are direct or indirect.
What is the difference between direct and indirect activities?
Qualifying direct activities (QDA) are those directly related to costs that contribute to resolving scientific or technological uncertainties. On the other hand, qualifying indirect activities (QIA) encompass supportive costs that facilitate the R&D process but do not directly address the uncertainties.
Direct activities for R&D:
- Activities directly contributing to resolving scientific or technological uncertainties.
- Creation or adaptation of software, materials, or equipment exclusively for R&D.
- Scientific or technological planning, design, testing, and analysis aimed at overcoming uncertainties.
Indirect activities for R&D:
- Activities that support the R&D project without directly addressing uncertainties.
- Scientific and technical information services aiding R&D support.
- Administrative tasks, finance, and personnel activities dedicated to R&D efforts.
- Ancillary activities essential to R&D, such as staff hiring, laboratory leasing, and maintaining research equipment.
- Training directly supporting an R&D project.
- Research conducted by students and researchers at universities.
- Research for devising new testing, survey, or sampling methods that are not R&D in themselves.
- Feasibility studies guiding the strategic direction of specific R&D activities.
Our adaptation to new guidance
To meet the requirements of the new Additional Information Form, we will make changes to our platform. It will now automatically distinguish between direct (QDA) and indirect activities (QIA). This update will strengthen your claim and align it with HMRC’s new standards. These changes are expected by mid-august.
In platform breakdown of qualifying direct and Indirect activities – How it works
Step 1: Automatic Activity Allocation
- Our platform automatically distributes costs to qualifying direct activities (QDA), qualifying indirect activities (QIA), or both (QIA/QDA) based on the R&D percentage assigned.
- Specific details for each cost category are requested (e.g., job titles, work descriptions, item types, and % time spent on each project), which our platform uses, along with taxonomy rules, to make educated estimations.
Note: the screenshots are wireframes and will look different when implemented on the platform.
Step 2: Optional Manual Adjustment
- You have the option to adjust the automated activity allocation if needed manually.
- A warning may appear if the allocation deviates significantly from HMRC guidelines due to high R&D percentages for QIA activities.
Step 3: Review and Flagging
- After allocating R&D percentages and identifying qualifying activities, you can submit the section for review.
- Our team will promptly flag any irregularities before proceeding with the claims process.
