Research and Development (R&D) — The Relief for R&D (Content of Claim Notifications, Additional Information Requirements and Miscellaneous Amendments) Regulations 2023
Published 21 July 2023
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Who is likely to be affected
The Regulations will impact all companies that carry out Research and Development (R&D) and claim R&D tax relief under either of the two schemes — the Research and Development Expenditure Credit (RDEC) and the small or medium enterprises (SME) R&D relief.
The increased administrative burden will also impact tax advisors and agents who help companies to complete their Corporation Tax Returns.
General description of the measure
The Regulations specify the information to be provided by companies in support of their claims to R&D.
The Regulations also introduce a requirement for digital filing of all amendments to Corporation Tax Returns where the Corporation Tax Returns contain a claim to one of the R&D tax reliefs. The digital filing requirement does not extend to customers who have statutory protections allowing for provision of paper returns.
Policy objective
The Regulations deliver on the government’s commitment to tackle high levels of fraud and error within the R&D tax regimes by improving the standard of information that companies are required to provide in support of their claims, and by requiring the information in a form that can allow for improved risk assessment.
Background to the measure
At Budget 2021 the government announced a review of the R&D reliefs, supported by a consultation with stakeholders. This consultation explored potential revisions to the R&D schemes, including departure from the ordinary Corporation Tax self-assessment system and increased information and assurance requirements for claimants.
Following the consultation, at Autumn Budget 2021, the government announced reforms to R&D tax reliefs and published a report in November 2021 setting out detail on a series of initial measures to reform the R&D tax relief system. These measures included a package of measures to target abuse and improve compliance.
The government published draft legislation for stakeholder input in July 2022. Final legislation was then included in the Finance Act (No.2) 2022 which gave HMRC the power to specify via regulations the additional information to be provided in support of R&D claims.
These Regulations come into effect from 8 August 2023.
Detailed proposal
Operative date
The Regulations will have effect for claims to Research and Development relief submitted from 8 August 2023. Customers who are already exempted from the requirement to file digital returns will not be affected by the new requirement to submit digital amendments to Corporation Tax Returns that contain R&D claims.
Current law
Current law on R&D regimes is included in Chapter 6A of Part 3 of CTA 2009, Part 13 of CTA 2009 and Schedule 18 to FA 1998.
Current law on electronic communications is in Income and Corporation Taxes (Electronic Communications) Regulations 2003 (SI 2003/282).
Proposed revisions
Regulation 2 specifies the information that must be provided by a company for the purposes of claim notifications made under section 1142A CTA09.
Regulation 3 specifies the information that must be provided by the claimant company.
Regulation 4 makes an amendment to the Electronic Communications Regulations 2003 so that the claim notification made under Part 3 of CTA09 and additional information provided under paragraph 83EA(1) of Schedule 18 to the Finance Act 1998 and amended returns that relate to an R&D claim must be delivered electronically.
Summary of impacts
The measures included in the Regulations were impacted as part of the larger package of changes to the R&D regime that have been brought in via Finance Act (No. 2) 2022. The impacting was published as part of the Finance Bill TIIN but is included again in this document for reference.
Exchequer impact (£ million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| — | -20 | -215 | -290 | -315 | -340 |
The exchequer impact of this measure was set out at Autumn Statement 2022 and has been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2022.
Economic impact
This measure is not expected to have any significant macroeconomic impact.
Adjustments were made to take account of behavioural effects, including businesses adjusting their R&D expenditure in response to the measure.
Impact on individuals, households and families
This measure is not expected to impact on family formation, stability or breakdown.
There is no impact on individuals as these measures affect businesses.
Equalities impacts
It is not expected that there will be adverse effects on any group sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have significant impact on the administrative burden of approximately 90,000 businesses claiming R&D tax reliefs. One-off costs would include familiarisation with the changes and updating systems to reflect them. Continuing costs could include a requirement to provide additional information to HMRC in the company tax return.
Estimates of the costs are shown in the tables below:
Estimated one-off impact on businesses (£ million)
| One-off impact | £ million |
|---|---|
| Costs | negligible |
| Savings | — |
Estimated continuing impact on administrative burden (£ million)
| Continuing average annual impact | £ million |
|---|---|
| Costs | £400,000 |
| Savings | — |
| Net impact on annual administrative burden | + £400,000 |
Customer experience could be affected as the measure amends R&D tax credit legislation and requires additional information to support a claim. This will be addressed by clear guidance to advise of changes, and by communications including through HMRC’s stakeholder forum: the Research & Development Communications Forum (RDCF).
This measure is not expected to impact on civil society organisations.
Operational impact (£ million) (HMRC or other)
The estimated operational costs for HMRC are in the region of £23 million covering both IT and staff costs.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measures will be monitored through information collected from tax returns.
The current R&D reliefs have been subject to period econometric evaluation, providing a good baseline for future evaluations. HMRC are collecting more information which enables HMRC to better monitor the relief through, for example, clearer data on what is being claimed.
Consideration will be given to evaluating the policy after 5 years of monitoring data have been analysed and collected.
Further advice
If you have any questions about this change, please contact Yasmin Achha or David Harris on
Telephone: 03000 592 504 or 03000 586 834
Or email: yasmin.achha@hmrc.gov.uk or david.harris@hmrc.gov.uk
Declaration
Victoria Atkins MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.