R&D tax relief – new requirements for claims

R&D tax relief – new requirements for claims


The changes to the costs rules for overseas workers are now expected to apply for costs incurred on or after 1 April 2024 – along with the introduction of the new merged R&D scheme.

On 20 December 2022, HMRC published draft guidance on the application of the changes in the R&D legislation that are effective for accounting periods beginning on or after 1 April 2023. While the guidance is subject to consultation, and covers all the changes to be legislated, there are some elements that go further than had been expected.

Additional information required with claims

Perhaps the most notable element of the draft guidance is the additional information to be submitted with claims in future. Claimants will be required to submit a formal ‘Additional Information’ form with their claims setting out a wide range of information relating to the R&D project, the costs involved (broken down under specified headings), the workers involved and, perhaps, most importantly from HMRC’s perspective, details of the agent who helped the company prepare the claim.

For the largest projects, the company will also be required to describe:

  • What is the main field of science or technology?
  • What was the baseline level of science or technology that you planned to advance?
  • What advance in that scientific or technical knowledge did you aim to achieve?
  • What scientific or technological uncertainties did you face?
  • How did your project seek to overcome these uncertainties?

Where a claim covers up to three projects, these descriptions must cover 100% of the qualifying costs claimed. For R&D claims with more than three projects, the disclosure is required for a minimum of three projects and a maximum of 10.

BDO already provides most of these details in the R&D reports that our clients submit with their claims, but the new Additional Information form will represent a significant increase in administrative reporting on R&D claims for many advisers. Companies should check that their advisers will be able to compile these forms for them in future years and put systems in place to collect the required data.

Qualifying Overseas Expenses

Another key element of the guidance covers the definition of ‘Qualifying Overseas Expenses’ under the new rules. While the majority of overseas expenses will not qualify, some can qualify where all of the following three factors apply:

  1. The conditions (geographical, environmental and social) necessary for the R&D are not present in the UK
  2. The conditions are present in the location where the R&D is undertaken
  3. It would be wholly unreasonable to replicate the conditions in the UK.

Although the guidance does give some examples of what “wholly unreasonable” means in this context, there is bound to be considerable debate around this in individual circumstances in future. It is reiterated that cost alone or the availability of suitably qualified workers to carry out the R&D are not relevant factors in determining whether overseas expenses qualify for relief.

In addition, some overseas expenses can qualify due to the legal or regulatory requirements of the local jurisdiction but, where this is claimed, the guidance sets out that “…HMRC would expect to see clear, independent evidence that this was the case – for example correspondence from the regulatory body.”

New expenses that qualify

As hoped, the draft guidance sets out when the cost of data used in R&D can be claimed. The guidance makes clear that R&D relief cannot be claimed on data costs that the business can recoup – for example, by selling the data after it has been used. Similarly, data costs will only qualify when they are directly attributable to the R&D work – they cannot be claimed if they relate to Qualifying Indirect Activities.

For cloud computing service costs, the only real clarification is that these must relate to external third-party subscriptions / licences: the cost of creating cloud computer services in-house will not qualify.

The guidance confirms that Pure Maths would qualify for R&D relief for accounting periods beginning on or after 1 April 2023, and the BEIS Guidelines will be modified to reflect this. No examples of qualifying activities are provided – leaving this for the interpretation of the claimant company and their advisers. We expect to see evolving practice in this area as a result.

New claimant procedures

Finally, the guidance confirms that businesses that have never claimed R&D relief before and those that have not claimed in the last three calendar years must notify HMRC of their intention to claim within six months of the end of the accounting period in which the R&D took place - unless the full claim has already been submitted before the six-month deadline. To make a notification, the business must submit details about itself and the R&D adviser it will be using to help compile the claim on a formal ‘Claim Notification’ form (much as in the Additional Information form).

Next steps

BDO will be responding to the consultation on the draft guidance and if you have any specific questions on the points covered, please get in touch so we can raise the issue with HMRC.

In the meantime, it is clear that many businesses will have to formalise and improve their record keeping for R&D projects to support future claims. We have considerable experience in helping clients set up suitable record keeping processes and procedures to support their R&D claims – for example, automating processes may be appropriate to ensure high quality data is obtained without a huge administrative effort. So please contact us for help and advice on the practicalities of your future R&D claims.



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