R&D tax relief – the 2021 compliance changes

HMRC has expressed concerns about the level of error and fraud in the R&D tax relief system. As a result, they are introducing more stringent compliance checks and requiring more detailed information to support claims.

Businesses must now provide a digital breakdown of their R&D costs and a clear explanation of the scientific or technological uncertainty they were trying to resolve. Ensuring your documentation is contemporaneous and that your technical reports are thorough is now more important than ever to avoid delays or inquiries.

The new digital requirements

To improve transparency, HMRC will require all R&D claims to be submitted digitally. Claims will need to be accompanied by a detailed report that breaks down the costs across qualifying categories (such as staffing, consumables, and software) and provides a clear narrative of the R&D project. Furthermore, the claim must be endorsed by a named senior officer of the company, ensuring accountability at the board level.

Advance notification

In a significant change, companies that are claiming R&D tax relief for the first time, or those that have not made a claim in the previous three accounting periods, will need to notify HMRC in advance of their intention to claim. This notification must be made within six months of the end of the accounting period to which the claim relates. Failing to notify HMRC in time will result in the claim being rejected.

The importance of competent professionals

HMRC is placing greater emphasis on the involvement of 'competent professionals' in the R&D process. Your technical report must clearly demonstrate that the project sought to achieve an advance in science or technology that would not be readily deducible by a competent professional working in the field. Partnering with a specialist advisor who understands both the tax legislation and the technical nuances of your industry is crucial for preparing a robust claim.