Warning over R&D tax claims pre-registration deadline

New requirements for companies to pre-register an intention to make a claim are starting to have an impact.

Any newly formed innovative business wishing to make a claim for R&D tax relief has just six months from the end of its financial year to act.

The idea behind the HM Revenue & Customs (HMRC) changes is to clamp down on the abuse of the system, prevent frivolous claims and halt the activities of unregulated R&D consultancies.

New regulations were introduced from April 1 last year, meaning many businesses with year end March 31 2024 have only until the end of September to register.

Once a claim is registered there are still up to two years to submit the actual detailed claim but businesses missing the notification deadline lose the right to claim for the financial year in question.

The changes apply to companies who are claiming for the first time or who have not made a claim in more than three years.

Nick Woolfe, Azets Partner and Head of R&D Tax for the South Region, said: “This new measure is being overlooked following a suite of R&D tax changes such as merging the two current tax relief schemes, the creation of a new R&D intensive scheme, and the requirement to provide online information prior to claim submission.

“Businesses need to be very careful about getting the administration of any tax relief claims organised at an early stage or they could find themselves unable to access generous tax relief sometimes worth more than 20 per cent of the R&D spend.

“Too many businesses are relying on the ‘two-year window’ and trying to gain efficiencies by making two claims simultaneously, but that will no longer be possible. A way of mitigating the pre-notification requirement is to make the full claim within the six-month period, but few businesses are aware of that option.

“It is to be welcomed that action is being taken to clamp down on bad practices and behaviours being encouraged by some of the unregulated R&D consultancies and to make companies consider their actions, but it is also critical that businesses take the right advice and are aware of the full range of measures being introduced.”

There was an average of 747,000 new companies incorporated in the UK each year between 2019 and 2022 and if that pattern continues in 2023/24 it reveals the number of companies which could potentially be affected by the new pre-disclosure requirements.

Latest HMRC statistics show there are around 19,000 new applicant companies to the UK R&D schemes each year, a figure not including those companies which have not claimed for more than three years.

Nick added: “There are three million active limited companies across the UK, of which 90,000 companies claimed R&D Tax Relief in total last year, including the 19,000 new claimants, so while the pre-disclosure changes may directly impact tens of thousands of companies, it is something of which hundreds of thousands of businesses need to be aware.”

The total support claimed through the UK’s two R&D schemes for the tax year 2021 to 2022 is estimated to be £7.6 billion – an increase of 11 per cent on the previous year’s total.