TAXguide 07/23: Making R&D claims

Two new forms are required when making claims for research and development (R&D) tax relief. While the additional information form is required for all R&D claims, advance notification will also be required for some.

Finance (No. 2) Act 2023 introduced two new forms for companies making R&D claims. The requirement to complete these forms applies to tax relief or tax credits claimed under the SME R&D regime and to the R&D expenditure credit (RDEC).

A digital additional information form (AIF) must be completed before submitting any company tax return that contains an R&D claim. This requirement came into force for claims made on or after 8 August 2023, regardless of the accounting period to which the claim applies.

New claimants or infrequent claimants may also need to notify HMRC in advance of making an R&D claim for accounting periods beginning on or after 1 April 2023. The notification window is quite tight, so care is needed to ensure that this requirement is not overlooked.

When is notification in advance required?

A company (or their agent) is required to tell HMRC that they are planning to make an R&D claim for an accounting period beginning on or after 1 April 2023 if:

they are making an R&D claim for the first time; or
their last R&D claim was made more than three years before the last date of the claim notification period (HMRC’s guidance refers to this as the three-year exemption). The exemption applies to any type of R&D claim made during that three-year period (ie, RDEC, R&D tax credit, or an additional deduction under the SME scheme).

There is also a transitional rule to be aware of. This states that for the purposes of determining whether a claim has been made within the three-year window ending with the end of the claim notification period, any R&D claims made for an accounting period beginning before 1 April 2023 are ignored if they are included in the company’s tax return only by virtue of an amendment made on or after 1 April 2023.

If a company is required to make a claim notification and fails to do so, it will be unable to make an R&D claim.

The claim notification period runs from the start of the period of account and ends six months after the end of the period of account that the R&D claim relates to.

Example 1 – first-time claimant
A first-time claimant company plans to make an R&D claim for qualifying R&D expenditure incurred in its 12-month period of account that runs from 1 October 2023 – 30 September 2024. To make an R&D claim in its company tax return for that period, it must first notify HMRC in advance during its claim notification period of 1 October 2023 – 31 March 2025.

Example 2 – checking the three-year exemption
A company has an accounting date of 31 March each year. Its filing and R&D claim history is as follows:

Year end	R&D claim	Date claim made
31 March 2020	Claim for R&D tax credit	Claim made in return filed on 15 March 2021
31 March 2021	No claim made	Return filed on 26 February 2022
31 March 2022	Claim for R&D tax credit	Claim made in an amended return filed on 15 April 2023
31 March 2023	Planned claim for R&D tax credit
31 March 2024	Planned claim for an additional deduction under the SME scheme

The company does not need to notify HMRC of its planned claim in respect of its accounting period ending 31 March 2023 as the requirement to notify HMRC in advance of making a claim does not apply to that period.

The company needs to consider if advance notification is required for the year ending 31 March 2024. The claims notification period for the year ending 31 March 2024 runs from 1 April 2023 – 30 September 2024.

The three-year exemption would generally apply if the company has made a previous R&D claim in the three-year period from 1 October 2021 – 30 September 2024. Even though an R&D claim was made within that window on 15 April 2023, the transitional rule means that that claim must be ignored as it is a claim for an accounting period beginning before 1 April 2023 and it was made by virtue of an amendment filed on or after 1 April 2023.

Therefore, the company must notify HMRC by 30 September 2024 that it plans to make an R&D claim for its year ended 31 March 2024.

What information is needed for the claim notification form?

The basic information includes the company’s unique taxpayer reference (UTR), the name and contact details (telephone number and email address) of the senior R&D contact within the company who is responsible for the R&D claim, agent details for any agent involved in the R&D claim, and the accounting period / period of account start and end dates relating to the R&D claim.

An agent is involved in the R&D claim if it:

has provided advice in relation to any part of the R&D claim;
has helped prepare all or part of the claim through technical assessment or by analysing costs;
is involved in the making of the claim, including by providing information for or completing the online forms and the filing of the company tax return.

Details about the R&D claim are also required. The legislation requires details about the number of R&D projects and an overview of those projects. HMRC’s guidance indicates that it expects this to demonstrate why projects meet the standard definition of R&D.

When is an AIF required?

An AIF is required before submitting any company tax return that contains an R&D claim on or after 8 August 2023. In the period to 3 September 2023, HMRC reported that almost half of all R&D claimants had failed to submit an AIF.

If the company has a long period of account, two AIFs will be required:

one for the first 12-month accounting period; and
one for the subsequent short accounting period.

Finance (No. 2) Act 2023 also introduced a power for HMRC to remove R&D claims from a company tax return where an officer of Revenue and Customs reasonably believes that a claimant company has failed to comply with a requirement relating to the making of the claim. This includes a failure to submit the AIF before making an R&D claim in the company tax return.

What information is needed for the AIF?

For companies that have submitted a claim notification, there will be a limited amount of duplication with the AIF. However, the AIF requirements are extensive.

The legislation specifies that the AIF must contain the information set out in the table below.

Topic	Specified information
The company	registered name; UTR; VAT registration number (if registered); and PAYE reference.
The company officer responsible for ensuring the accuracy of the information provided in the AIF	name; role in the company; and contact details.
Agent details for any agent involved in the R&D claim (see above)	name; agent reference number; business or trading name; type of agent (eg, agent just for the company’s R&D claims or also the company’s main tax agent) principal place of business; and contact details.
The R&D claim	the accounting period / period of account start and end dates relating to the R&D claim; whether the claim relates to the SME scheme, RDEC, or both; whether the qualifying expenditure relates to R&D activity in the UK; if the company has made an SME claim for accounting periods beginning on or after 1 April 2021, whether the exceptions to the tax credit cap apply to the company and, if so, the reasons; a breakdown of qualifying expenditure claimed under the SME scheme, by: - staffing costs; - externally provided workers (EPWs); - contracted out R&D; - software; - consumable items; - payments to clinical trial participants; - data licences (for accounting periods starting on or after 1 April 2023); - cloud computing services (for accounting periods starting on or after 1 April 2023). the total amount of SME qualifying expenditure that is attributable to qualifying indirect activities; a breakdown of qualifying expenditure for which RDEC is claimed, by; - staffing costs; - EPWs; - contracted out R&D; - contributions to independent R&D costs; - software; - consumable items; - payments to clinical trial participants; - data licences (for accounting periods starting on or after 1 April 2023); - cloud computing services (for accounting periods starting on or after 1 April 2023). the total amount of RDEC qualifying expenditure that is attributable to qualifying indirect activities; for accounting periods starting on or after 1 April 2023, the number of externally provided workers (EPWs) that have been involved in the project(s); for accounting periods starting on or after 1 April 2023, the employer’s PAYE reference(s) for all UK-based EPWs (or an explanation of why the claimant is unable to find out the PAYE reference(s)).
The R&D projects If the R&D claim is for: 1–3 projects, the company must describe all the projects it is claiming for; 4–10 projects, the company must describe projects that account for at least 50% of the total expenditure, with a minimum of three projects described; 11 or more projects, the company must describe projects that account for at least 50% of the total expenditure, with a minimum of three projects described. If the qualifying expenditure is split across multiple smaller projects, the company must describe the 10 projects with the most qualifying expenditure. If the company is claiming both SME tax relief and RDEC, it will need to apply the above tests to each of the total of SME tax relief and RDEC claims separately. It must provide: details of the required number of projects based on the qualifying expenditure for its SME tax relief claim details of the required number of projects based on the qualifying expenditure for its RDEC claim	the number of R&D project(s); for each project described: - the name of the project; - the main field of science and technology covered by the project; - a description of what scientific or technological knowledge existed at the start of project that the company planned to advance; - a description of the advance in scientific or technological knowledge that the project aimed to achieve; - a description of the advance in scientific or technological knowledge that the project aimed to achieve; - a description of the scientific or technological uncertainties that the project faced; - a description of how the project sought to overcome those scientific or technological uncertainties; - the total qualifying expenditure for that project (split between SME and RDEC expenditure, where relevant).

While much of this information may be subsequently set out in an R&D report to support a claim, the AIF dictates a standardised approach to allow HMRC to risk assess claims.

HMRC’s guidelines for compliance include guidance on record keeping and apportionment where accounting systems are unable to record costs attributable to specific projects.

Companies and their agents need to factor in the time to gather the information required for the AIF as it has to be submitted before the company tax return. This might include capturing third-party information that was not previously required (eg, PAYE references for EPWs).

Completing the claims process

The company tax return (CT600) contains additional boxes relating to these forms.

If the company had to submit a claim notification form, it should put an ‘X’ in box 656 of the company tax return to tell HMRC that a claim notification form was submitted. An ‘X’ in box 657 indicates that the AIF was submitted.

Note: there is a known error preventing some RDEC claimants from making an entry in both box 655 (indicating that the claim is made by a large company) and box 657. Read what to do if this occurs.