FEATURE
Azets’ advice on avoiding common R & D Tax relief pitfalls
MIND YOUR R & D
As the UK’ s research & development( R & D) tax relief regime continues to evolve, so too do the challenges and risks of making a claim. Steven Holmes, tax advisory partner at leading accountant and business advisor Azets, has prepared five top tips to help …
R & D red flags – Azets tax advisory partner Steven Holmes.
1. Last-minute amendments and communication breakdowns A claimant engaged an R & D adviser to prepare a last-minute claim and amended tax return. The adviser received a copy of the draft accounts and tax computation. The main tax agents issued the final documents to the claimant and submitted the accounts and tax return.
During compilation of the claim, it was not reconciled to the final accounts or tax computation.
Result: An incorrect tax position, likely missed benefit and potential penalties.
Our advice: Check what services your accountant offers; having both services in-house is likely to improve communication and efficiency. If you engage an R & D specialist, ensure clear communication between all parties. Leaving amendments to the last minute increases the risk of errors and missed opportunities. Establish who is responsible for what early in the process.
2. Failure to file the Additional Information Form( AIF) There is a mandatory requirement to submit an AIF before filing an R & D claim. Failure to file the AIF, filing it after the tax return or filing it with an error can result in automatic claim rejection. When the claimant is notified of the error, the amendment window may have closed, with only the complex SP05 / 01 route to appeal.
Our advice: Carefully review the AIF. An incorrect or unfiled AIF can result in a missed claim.
3. Pre-notification confusion and misinterpreting HMRC guidance The new pre-notification requirement has introduced significant confusion, especially given HMRC’ s announcement that its own
Treat HMRC enquiries with the same urgency as any legal or regulatory matter.”
guidance published in September 2024 was inaccurate.
The legislation stated that if a company’ s claim was for a period before April 1, 2023 and made in an amended tax return after April 1, 2023, pre-notification was required. However, HMRC’ s guidance stated this was not the case.
As a result, HMRC has allowed companies with March, April or May 2024 claim periods to claim if they initially determined no pre-notify requirement and, when the correct guidance was issued, had missed an opportunity to claim.
Our advice: Check HMRC guidance regularly and err on the side of caution if in doubt. You can choose to complete the claim in full, including submission, before the six-month deadline following your year end. For March to May 2024 claims, check if the claim is eligible per HMRC’ s appeal process.
4. Mismanaging enquiries and missing deadlines Approximately 20 % of claims are under enquiry by HMRC. In one case, a company
failed to formally request an independent review of their claim within the time limits, as it misunderstood the appeals process requirements, resulting in a lengthy legislative challenge and rejected claim.
Our advice: Treat HMRC enquiries with the same urgency as any legal or regulatory matter. Understand timelines, seek professional advice and respond comprehensively and promptly.
5. Incorrect Enhanced R & D Intensive Support( ERIS) calculations The ERIS scheme offers generous relief for qualifying SMEs. Claims have been rejected due to miscalculations of R & D intensity because of incorrect treatment of grant income, capitalised costs, eligible expenses or reconciling expenditure errors for long periods of accounts.
Our advice: ERIS calculations are complex. Use specialist tools or advisers and document your methodology in the R & D report.
Proactive compliance is the best strategy As highlighted above, the importance of proactive, informed and collaborative compliance is essential. Businesses must adapt by improving internal processes, seeking expert guidance and being aware of regulatory changes.
We are here to help If your company is planning a claim, or has encountered any of the above issues, now is the time to act. A well-prepared claim is not only about maximising relief but also about protecting your business from unnecessary risk. Please get in touch with our specialist R & D Tax Relief team for advice and support.
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