Controversial Administrative Change for R&D Tax Relief from 1st April 2023 – 2020 Innovation

The draft legislation for the upcoming changes to R&D
tax relief were revealed as part of Legislation Day. There were few surprises
where R&D tax relief was concerned as many of the forthcoming changes had
been widely publicised already.

The changes will affect accounting periods beginning on or
after 1st April 2023. The key changes include:

Whilst these changes are largely supported by many
associated with the relief, one aspect of the new legislation is likely to
cause consternation amongst advisers and claimant companies. HMRC had already
suggested that from April 2023, a requirement to pre-notify HMRC would be
introduced. Legislation Day provided more clarity on this aspect of the
forthcoming changes.

For accounting periods beginning on or after 1st April 2023,
companies will need to inform HMRC, in advance, that they plan to make an
R&D claim. They will need to do this, using a digital service, within 6
months of the end of the period to which the claim relates.

Thankfully, the announcement contained a key exemption to
the pre-notification requirement. Companies that have claimed in one of the
preceding three accounting periods will not need to pre-notify. This is welcome
news for all companies which have claimed R&D tax relief in a recent accounting
period.

Despite this, the impact of the new changes cannot be
overstated for companies which have not previously made a claim for R&D tax
relief (or have not claimed in the last 3 years). Under current rules, a
company is often able to make a claim for the previous two accounting periods
by taking advantage of the statutory right to amend a tax return up to 12
months after the filing deadline. For example, at the time of writing (July
2022) a company with a 31 December year end could feasibly make a claim for the
31 December 2020 period, as well as the more recent 31 December 2021 period.
The deadline for a 31 December 2020 claim would be 31 December 2022 (i.e. 12
months after the statutory filing deadline of 31 December 2021).

Under the new rules, and assuming the company had not made a
claim in any of the preceding 3 accounting periods, the company would not be
able to make a claim for an accounting period beginning on or after 1st April
2023 if it hadn’t pre-notified HMRC of its intention to do so within 6 months
of the end of that accounting period. For example, a company with a 31 March
2024 year end (and which hadn’t previously claimed in any of the preceding 3
years) would not be able to claim unless it had notified HMRC of its intention
to do so by 30th September 2024.

Whilst YesTax supports many of the measures introduced by
HMRC to combat fraud and error in the system, we’re viewing the
pre-notification rules as questionable at best. Many view the change as grossly
unfair.

What does this mean for potential claimant companies?

The pre-notification rules mean that companies which have
not previously made claims in recent years but intend to do so in the future
must take action within 6 months of their accounting period end dates. At
YesTax we can advise on the various timing issues which will be presented as a
result of the forthcoming changes.

HMRC are welcoming feedback on the proposed changes. At
YesTax, we expect that many will be providing feedback and comment on this
controversial change.

The message is clear. If you’re thinking of making a claim
and haven’t made a claim in the last 3 years, plan ahead now. Contact us at [email protected]

For further information about YesTax, please visit their Partner Resource Centre page.