ICAEW.com works better with JavaScript enabled.


ICAEW calls for refocusing of R&D tax relief changes


Published: 20 Sep 2022 Update History

In its response to the draft Finance Bill clauses published on 20 July 2022, ICAEW has highlighted those measures that it believes will inhibit R&D activity and therefore growth in the UK.

The draft clauses for Finance Bill 2022 set out a variety of changes to R&D tax relief that have been consulted on previously.

The first of these relates to the restriction on relief for expenditure subcontracted by a company to a party outside the UK, or carried out by externally provided workers outside the UK. The draft legislation includes a carve out for R&D activities undertaken outside the UK where it would be “wholly unreasonable” for a company to carry out those activities in the UK.

While ICAEW sees the logic in restricting relief for overseas R&D expenditure as a way to encourage activity to take place in the UK, it is concerned that it could have the opposite effect; moving R&D hubs outside the UK to a regime that is more amenable to cross-border R&D projects. In its response, ICAEW therefore called for a more expansive carve-out from the restriction on non-UK activities.

Similarly, ICAEW is concerned that a requirement for companies to “pre-notify” HMRC of their claims in some circumstances could prevent them from making valid claims, therefore diverting R&D activity elsewhere. The pre-notification (for which details are not yet available) would need to take place six months from the end of the accounting period for which the claim is made. That shortens the timeframe in which companies need to determine whether they have a valid claim.

This timeframe could be even shorter in cases where the company has a long period of account. ICAEW has therefore called for the pre-notification deadline, if introduced, to be based on the end of the period for which accounts are produced, rather than the claim periods contained within that “period of account”.

Two further administrative changes will require prescribed information to be provided in support of each R&D tax relief claim and give HMRC the power to remove claims made ‘in error’ from the relevant tax return.

ICAEW understands that this power is only intended to be used where the company has not made a pre-notification of the claim or has not provided the necessary information. However, the draft legislation does not define what “made in error” means.

ICAEW is therefore concerned that this power could be used in a wider set of circumstances. It has suggested that “made in error” should be defined to refer only to a lack of pre-notification or prescribed information accompanying the return.

Tax Faculty

This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.

More support on tax

ICAEW's Tax Faculty provides technical guidance and practical support on tax practice and policy. You can sign up to the Tax Faculty's free enewsletter (TAXwire) which provides weekly updates on developments in tax.

Sign up for TAXwireJoin the Tax Faculty
The future of tax after COVID

As digital technologies transform society, the UK government is grappling with balancing the books while ensuring its tax system is fit for purpose. Join us as we take a look at the issues and challenges facing the tax system.

Read more

More from the Tax Faculty

Latest news
Making tax digital image

Stay up to date with the latest developments in tax by signing up to the Tax Faculty's weekly e-newsletter

Practical guidance

Comprehensive support for Tax practitioners each month from the Tax Faculty and expert contributors.

Technical support
Tax Faculty image

Expert advice from the Tax Faculty's technical managers on all the developments in tax policy and practice.