The government has set out changes designed to reduce the administrative burden associated with the R&D tax relief claim process, notably, removal of claim notification and simplification of the Additional Information Form (AIF).
The changes were announced alongside a new consultation, Corporate Tax Simplification for Business Investment, launched as part of Chancellor, John Healey’s, first Budget.
The consultation sets out the government’s approach to simplifying the Corporate Tax system to support business investment, growth and competitiveness and seeks views on how to simplify complexity, uncertainty and administrative burden. It is open until 21 November.
What R&D changes were announced?
The government has announced two procedural changes relating to R&D tax relief:
- Claim Notification Form: removal from April 2027
- AIF: simplified from autumn 2027
Neither measure changes the R&D tax relief available to businesses, but they should instead make the process of accessing it more straightforward.
Claim notification changes
Claim notification was introduced for accounting periods beginning on or after 1 April 2023 as part of a broader suite of reforms designed to help combat error and fraud. It requires certain businesses, including those making an R&D claim for the first time, to notify HMRC before submitting their claim.
If a business misses the notification deadline, it could lose the opportunity to claim in a given tax year, meaning that legitimate claimants risk losing out on the relief. This additional hurdle has likely had a disproportionate impact on SMEs, who typically have fewer resources and are less likely to employ a professional adviser to prepare their claims.
The news that notification is to be abolished will likely be welcomed by businesses of all sizes, though especially SMEs.
Simplifying the Additional Information Form
The news that the government will simplify the AIF is also significant.
Introduced in August 2023, the AIF was also intended as an additional step in the R&D claim process to help combat error and fraud. However, like claim notification, the AIF has increased claim complexity and deterred genuine claimants from accessing the relief.
It will be interesting to see the detail of the changes and how they will be implemented. Much like claim notification though, the changes are likely to be welcome.
Additional R&D measures detailed in the consultation
In addition to the claim notification and AIF changes, the consultation will also explore two further areas for improvement in the R&D tax relief claim process. The first is legislation and whether the R&D relief legislation could be made simpler.
The government is open to how this might happen, but is explicitly seeking views on:
- The Enhanced R&D Intensive Support (ERIS) ratio: whether i) the definition of total expenditure is unclear; and ii) in relation to ERIS and connected companies, the definition of “connected” is too complex.
- PAYE / NIC cap: whether the cap works as it should to support smaller, growing businesses.
- Going concern status: whether businesses are losing this status for technical reasons where a viable trade still exists.
The second area where the government is seeking views is in relation to the administration of the relief. Here, it will engage stakeholders on AIF changes and the customer experience, including on advance assurance, where the pilot is currently running.
The government will also consider the design of the claims process. This could include integrating the existing forms to simplify the experience and eliminate duplication. A reengineered system could allow features such as customers who are completing forms being able to save their progress and, for those that have submitted, the ability to track claims.
What does the R&D consultation mean for businesses?
After several years of change to the incentive, a period of policy stability while the changes bed in has been welcome. But while the intent behind the changes has been laudable, there’s no doubt that they have brought unwanted complexity and, in some cases, deterred businesses from claiming entirely.
A Budget then that focuses on removing complexity rather than adding to it, will likely be welcomed by businesses of all sizes, especially those at the smaller end of the scale. We have heard from many businesses over the last couple of years that have found the procedural changes onerous.
The detail of the AIF changes will be interesting to see, as will the outcome of the consultation. In the meantime, it’s heartening to see new initiatives to simplify the process and remove unnecessary hurdles to accessing this valuable relief.
Speak to our experts
ForrestBrown is the leading R&D tax relief consultancy and home to a wealth of expertise including tax, accounting and sector specialisms. We have supported a wealth of businesses ranging from SMEs to large multinationals.
If you would welcome support on how the procedural changes could affect your claim, do get in touch.