Now that the R&D Additional Information Form (AIF) is live, it is timely for HMRC’s Large Business Directorate (LBD) to have updated its guidance on making R&D claims.
Although HMRC’s latest estimates of error and fraud in RDEC claims show a ‘non-compliance’ rate of just 3.6% for 2022/21, LBD had R&D claims totalling £727m ‘under consideration’ on 31 March 2023. Tax ‘under consideration’ is HMRC's estimate of the maximum potential additional tax liability in each case before full investigation: so there is a clear scope for LBD to improve the practical operation of claims.
Although the guidance envisages LBD taking a collaborative and supportive approach for RDEC claims in the future, large businesses are not exempt from new AIF requirements that came into effect from 8 August 2023. AIFs will be required for every claim, but LBD is happy to engage with large businesses on the specifics of claims and ‘Work with customers to enable them to develop simple procedures, which … draw from and fit with the company’s existing processes and accounting systems to avoid a disproportionate amount of extra work being needed’ to compile claims.
The guidance confirms that while LBD’s Customer Compliance Managers (CCMs) have no discretion over whether an AIF is filed, they ‘may agree an approach to the amount of detail which is provided’ in an AIF, which may for example, mean that only bullet points on a project need to be submitted where it has ‘been discussed with HMRC in a pre-filing meeting’. Similarly, a copy and paste approach to AIFs for a following year’s claim for a long-running project may be acceptable, where agreed with the company’s CCM, and the details are ‘updated where necessary’.
Interestingly, LBD sees value in businesses submitting R&D reports alongside the AIF as they can ‘provide valuable assurance to HMRC and contain additional information … such as details of competent professional experience and R&D claim methodology’. This is a different approach to SME scheme claims, where reports are no longer accepted by HMRC.
Under the new regime, businesses making multiple R&D claims are required to provide a specific number of ‘write ups’ on their projects – many large businesses will have to submit the maximum of 10 write ups. However, LBD understandably wants the 10 write ups to be representative of the range of R&D activities undertaken, so where the 10 largest projects by qualifying expenditure are not representative of the R&D, it encourages companies to pre-agree with their CCM which projects will be written up.
Where companies claim for a large number of R&D projects, it has previously been accepted practice for them to be prepared using ‘sampling’ methodologies instead of full analysis of potentially thousands of projects. While this can still be acceptable to LBD, the new guidance makes clear that sampling will only be permitted where a business has at least 15 ‘like’ projects, and the ‘level of R&D undertaken is reasonably similar’ across them. Even in such cases, a sampling approach must be agreed on a case-by-case basis with one of LBD’s R&D specialists before it can be used for claims. This is likely to mean that only the largest companies will be able to adopt sampling in future.
The clarity the updated guidance (see HMRC's Corporate Intangibles Research and Development Manual at CIRD80370) brings is likely to be welcomed by large businesses and their advisers, but its success will depend on the timeliness of CCMs and the LBD to engage with R&D claimants to pre-agree bespoke methodologies.
Home >Articles > New HMRC guidance for large businesses making R&D claims
New HMRC guidance for large businesses making R&D claims
Now that the R&D Additional Information Form (AIF) is live, it is timely for HMRC’s Large Business Directorate (LBD) to have updated its guidance on making R&D claims.
Although HMRC’s latest estimates of error and fraud in RDEC claims show a ‘non-compliance’ rate of just 3.6% for 2022/21, LBD had R&D claims totalling £727m ‘under consideration’ on 31 March 2023. Tax ‘under consideration’ is HMRC's estimate of the maximum potential additional tax liability in each case before full investigation: so there is a clear scope for LBD to improve the practical operation of claims.
Although the guidance envisages LBD taking a collaborative and supportive approach for RDEC claims in the future, large businesses are not exempt from new AIF requirements that came into effect from 8 August 2023. AIFs will be required for every claim, but LBD is happy to engage with large businesses on the specifics of claims and ‘Work with customers to enable them to develop simple procedures, which … draw from and fit with the company’s existing processes and accounting systems to avoid a disproportionate amount of extra work being needed’ to compile claims.
The guidance confirms that while LBD’s Customer Compliance Managers (CCMs) have no discretion over whether an AIF is filed, they ‘may agree an approach to the amount of detail which is provided’ in an AIF, which may for example, mean that only bullet points on a project need to be submitted where it has ‘been discussed with HMRC in a pre-filing meeting’. Similarly, a copy and paste approach to AIFs for a following year’s claim for a long-running project may be acceptable, where agreed with the company’s CCM, and the details are ‘updated where necessary’.
Interestingly, LBD sees value in businesses submitting R&D reports alongside the AIF as they can ‘provide valuable assurance to HMRC and contain additional information … such as details of competent professional experience and R&D claim methodology’. This is a different approach to SME scheme claims, where reports are no longer accepted by HMRC.
Under the new regime, businesses making multiple R&D claims are required to provide a specific number of ‘write ups’ on their projects – many large businesses will have to submit the maximum of 10 write ups. However, LBD understandably wants the 10 write ups to be representative of the range of R&D activities undertaken, so where the 10 largest projects by qualifying expenditure are not representative of the R&D, it encourages companies to pre-agree with their CCM which projects will be written up.
Where companies claim for a large number of R&D projects, it has previously been accepted practice for them to be prepared using ‘sampling’ methodologies instead of full analysis of potentially thousands of projects. While this can still be acceptable to LBD, the new guidance makes clear that sampling will only be permitted where a business has at least 15 ‘like’ projects, and the ‘level of R&D undertaken is reasonably similar’ across them. Even in such cases, a sampling approach must be agreed on a case-by-case basis with one of LBD’s R&D specialists before it can be used for claims. This is likely to mean that only the largest companies will be able to adopt sampling in future.
The clarity the updated guidance (see HMRC's Corporate Intangibles Research and Development Manual at CIRD80370) brings is likely to be welcomed by large businesses and their advisers, but its success will depend on the timeliness of CCMs and the LBD to engage with R&D claimants to pre-agree bespoke methodologies.
