R&D tax relief has been the subject of increased attention in recent years due to perceived levels of fraud and error. The rules for R&D tax relief have been reformed and HMRC has stepped up its compliance activity.  

Against this backdrop, HMRC has recently published: 

• a new tool that can be used to check if a company has undertaken qualifying R&D before a claim for tax relief is made;
• statistics for claims made in the tax year 2023 to 2024 that show a significant reduction in the number of claims for R&D tax relief; and
• guidance on how to report agents suspected of giving poor service in relation to R&D tax relief.  

New tool for checking if R&D carried on 

HMRC’s new tool takes the user though a number of the key tests that define qualifying R&D for tax purposes. Explanations and links to further guidance are provided. HMRC says that a competent professional will be needed to help answer some of the questions. Once all of the questions have been answered, HMRC says that the tool will give the user a clear indication of whether the work carried on is qualifying R&D.  

HMRC recommends that the user saves their result and keeps a record of the information used to answer each question as this will help with making a claim for tax relief. HMRC says that, in the event of a compliance check, it is “unlikely to disagree” that the project involves R&D activities if the answers given when using the tool were “based on your project’s facts and you can clearly support and explain them”.  

HMRC says that the user will not need to provide any personal or sensitive details when using the tool and that HMRC will not store or use any of the information that is provided.  

Drop in companies claiming relief 

HMRC’s latest statistics for R&D tax relief suggest that changes to tax policy, and in HMRC’s compliance approach, are beginning to have a significant impact on claims. Although the total amount claimed in R&D tax relief for the tax year 2023 to 2024 (£7.6bn) is down by only 2% on the previous year, the number of claims has fallen by 26%, driven by a significant fall in the number of smaller value claims.  

It should be noted that the rates of relief for small and medium-sized companies reduced, and the rate of the large company-focused R&D expenditure credit (RDEC) increased, with effect for expenditure incurred on or after 1 April 2023. This explains why the reduction in the number of claims has not given rise to a bigger drop in the total value of relief claimed. Future releases will show the impact of the merged RDEC for accounting periods beginning on or after 1 April 2024.  

The statistics also suggest that the changes to rules and processes may be deterring companies new to R&D tax relief from making a claim. First time applications for R&D tax relief for 2022 to 2023 were down by 41% compared to the previous year, representing the fourth consecutive year where first-time applicants declined overall. ICAEW members have reported that spiralling R&D compliance costs are acting as a barrier to making a claim.  

Reporting poor service by agents 

HMRC has published guidance on how agents or other accountancy professionals can report an agent they suspect of having poor service standards in respect of R&D tax relief to HMRC.  

HMRC says that indicators of poor service standards include: 

• giving misleading information;
• having poor technical knowledge; or
• behaving in a dishonest manner.  

The guidance explains how to contact HMRC, what information will be required and how HMRC will deal with the report.