The publication of HMRC’s latest guideline highlights the importance of correctly identifying whether a research and development (R&D) claim meets the necessary conditions to qualify for tax relief.
R&D for tax purposes is defined in s1006, Income Tax Act 2007: “activities that fall to be treated as R&D in accordance with generally accepted accounting practice (GAAP)”. However, s1006 also introduces a regulation-making power to specify activities that are and are not to be treated as R&D.
The current regulations are The Research and Development (Prescribed Activities) Regulations 2023, SI 2023/293. These cross refer to guidelines on the meaning of R&D for tax purposes, issued by the Department for Science, Innovation and Technology (DSIT).
R&D that qualifies under the guidelines is R&D for tax purposes. If it does not qualify for R&D in the guidelines, it does not qualify for tax purposes. Note that for accounting periods beginning before 1 April 2023, The Research and Development (Prescribed Activities) Regulations 2004, SI 2004/712 and the earlier guidelines on the meaning R&D for tax purposes apply.
HMRC reports that it continues to see misunderstandings of what is and is not R&D under the DSIT guidelines. It has therefore issued guidelines for compliance (GfC): Help to see if your work qualifies as R&D for tax purposes. This expands on HMRC’s view of DSIT’s guidelines on the meaning of R&D for tax purposes. HMRC expects this to be read together with the DSIT guidelines when preparing R&D claims.
The GfC set out:
- HMRC’s expectations of claimants;
- who is a competent professional, able to judge if a project is seeking an advance in science or technology for the purposes of an R&D claim;
- how to identify qualifying R&D projects; and
- a recommended approach to claims and record keeping.
ICAEW also highlights the guidance on R&D tax services issued by the professional conduct in relation to taxation (PCRT) bodies in 2020. This guidance is relevant to an ICAEW member who is in a firm, or an employee of a claimant company, involved in preparing and submitting R&D tax claims or advising on them.
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