In a new report Research and development tax relief and expenditure credit, the House of Lords Finance Bill Sub-Committee urges the UK government to abandon its proposed requirement for companies to make an advance notification of R&D tax relief claims.
The proposal, included in the 20 July 2022 draft Finance Bill legislation, is expected to be taken forward in the Spring 2023 Finance Bill, following the 15 March Budget, and will have effect for accounting periods beginning on or after 1 April 2023. Details of information to be provided with the notification, and the form and manner in which the notification is to be made, are expected to be set out in secondary legislation.
The Lords Committee is particularly concerned that the new requirement would prevent genuine claimants from accessing relief while failing to address abuse, and potentially causing increased work for HMRC via ‘protective advance notifications’, where a notification is not followed up by an actual claim.
Welcoming the Lords report, David O’Keeffe, CIOT spokesperson on R&D tax relief, said:
‘This measure is poorly targeted because, although it will prevent some dubious claims, it will also mean that many genuine claims will fall out of time. It will exacerbate an existing unfairness that can arise between taxpayer companies that undertake R&D activities, based on whether or not they have an awareness of the tax relief rules at the appropriate time.’
The CIOT also welcomed other recommendations in the report, including that HMRC and BEIS work together on a new awareness campaign aimed at SMEs on what is and is not R&D (to make sure small businesses are not missing out on relief to which they are entitled), and that HMRC should work with representative bodies and others to improve the accuracy and user-friendliness of its published guidance on R&D relief.
The report also notes the current uncertainty around the treatment of subsidised expenditure, which HMRC considers is outside the scope of R&D relief, but where the First-tier Tribunal took a different view (Quinn (London) Ltd v HMRC [2022] SFTD 152.
In a new report Research and development tax relief and expenditure credit, the House of Lords Finance Bill Sub-Committee urges the UK government to abandon its proposed requirement for companies to make an advance notification of R&D tax relief claims.
The proposal, included in the 20 July 2022 draft Finance Bill legislation, is expected to be taken forward in the Spring 2023 Finance Bill, following the 15 March Budget, and will have effect for accounting periods beginning on or after 1 April 2023. Details of information to be provided with the notification, and the form and manner in which the notification is to be made, are expected to be set out in secondary legislation.
The Lords Committee is particularly concerned that the new requirement would prevent genuine claimants from accessing relief while failing to address abuse, and potentially causing increased work for HMRC via ‘protective advance notifications’, where a notification is not followed up by an actual claim.
Welcoming the Lords report, David O’Keeffe, CIOT spokesperson on R&D tax relief, said:
‘This measure is poorly targeted because, although it will prevent some dubious claims, it will also mean that many genuine claims will fall out of time. It will exacerbate an existing unfairness that can arise between taxpayer companies that undertake R&D activities, based on whether or not they have an awareness of the tax relief rules at the appropriate time.’
The CIOT also welcomed other recommendations in the report, including that HMRC and BEIS work together on a new awareness campaign aimed at SMEs on what is and is not R&D (to make sure small businesses are not missing out on relief to which they are entitled), and that HMRC should work with representative bodies and others to improve the accuracy and user-friendliness of its published guidance on R&D relief.
The report also notes the current uncertainty around the treatment of subsidised expenditure, which HMRC considers is outside the scope of R&D relief, but where the First-tier Tribunal took a different view (Quinn (London) Ltd v HMRC [2022] SFTD 152.
