Last week, we attended the RDCF meeting and have distilled it into key insights for you, saving you from a lengthy three-hour session! The meeting covered updates, including R&D tax relief reforms and process clarifications such as the Additional Information Form (AIF).
Make sure to note that the Autumn Budget is set for 30th October 2024. Although no new R&D policy changes were discussed, ministers are becoming familiar with the scheme, so we might get updates in the upcoming fiscal event.
Budget and government engagement
New ministers are becoming increasingly familiar with the R&D tax relief landscape, showing strong interest in ensuring the scheme continues to support innovation while protecting taxpayer funds. However, there is no indication that significant updates to R&D tax relief will be part of the upcoming budget. While further refinements may be expected, nothing has been officially communicated about major policy shifts.
Recap on reforms
The most significant reform discussed was the merged R&D scheme, which consolidates the SME and RDEC schemes. The RDEC scheme is now the default for many companies, though SMEs with more than 30% of their expenditure dedicated to R&D activities may still qualify for the Enhanced R&D Intensive Scheme (ERIS).
Recent changes in contracting rules, which took effect from 1st April 2024, are now fully reflected in the updated AIF, with mandatory use of the new form starting from 2nd October 2024.
Understanding the merged schemes
While the SME scheme and RDEC have merged, the ERIS scheme continues to offer additional relief for R&D-intensive SMEs. Companies spending more than 30% on qualifying R&D expenditure can still claim under ERIS, with a grace period allowing them to continue claiming even if they fall below this threshold in future periods.
For further detail, HMRC encouraged SMEs to consult the updated R&D manual (CIRD), especially for guidance on calculating payable credits and handling subcontracting arrangements under the new rules.
Additional Information Form update (AIF)
The updated AIF is an essential part of R&D tax relief claims under both the merged and ERIS schemes. Its new structure is designed to enhance transparency and streamline the claims process:
- Mandatory by 2nd October 2024: From this date, the revised AIF must be used for all submissions.
- Top 10 R&D Projects: Companies involved in 10 or more projects must report their 10 largest R&D projects by value instead of merely referencing attached reports. Claimants may still include an R&D report showcasing additional projects.
- Subcontracting: New guidance clarifies how subcontracting arrangements should be reported and who is responsible for claiming the relief.
- PAYE references for EPWs: Companies must provide PAYE references for all externally provided workers (EPWs), with any missing information to be explained in the free-text box.
Operational performance and compliance
HMRC is keen on hitting its goal of processing 85% of R&D claims within 40 days, even though there’s been a year-on-year drop in total claims. They’re gearing up for a seasonal uptick in December/January, which might be smaller than in past years, but they’re confident about sticking to these processing targets. The upcoming R\&D tax credit stats, expected in September, should give us a better look at just how much these numbers these numbers are dipping.
Enhanced security checks have been introduced for a small number of claims to prevent fraud, with HMRC aiming to reduce the error and fraud rate to 7-8% by 2024.
Consultation on raising standards for tax agents
An ongoing consultation aimed at improving the standards of tax advice in the R&D space is still in progress. No final conclusions have been drawn yet, but HMRC is considering several options, including requiring mandatory professional body membership for all tax agents, particularly as 35% of practitioners are currently unaffiliated with any oversight body.
Future engagement and compliance action plans
HMRC plans to release Claimant Support Packages by the end of 2024, along with a Disclosure Facility for companies to self-correct claims. Compliance measures, including the Mandatory Random Enquiry Programme (MREP), will continue to focus on reducing error rates.
Q&A summary
During the Q&A, HMRC clarified key points, including:
- Senior officer requirements: The officer signing the AIF must be an employee, not a contractor.
- AIF details: Companies must complete the AIF thoroughly—referencing attached reports is no longer sufficient.
- PAYE references: PAYE references must be included for externally provided workers (EPWs), with explanations provided where they are unavailable.
- ERIS eligibility: The updated AIF includes questions to validate claims under the grace period for ERIS.
The September 2024 RDCF meeting highlighted ongoing reforms to R&D tax relief and compliance processes. While the Autumn Budget may provide further clarification, no significant changes are expected. Companies should prepare for full compliance with the new AIF and follow the updated guidance. If you have any questions, please do not hesitate to get in touch with one of our team today.
