Gemma Monaghan

“The unclaimed £100m should be invested in Scottish businesses, not sitting with HMRC owing to administrative issues,” said Gemma Monaghan, R&D Tax partner with Azets.

From 8 August 2023, HMRC introduced the requirement to complete an Additional Information Form (AIF) before an R&D claim is filed through a company’s tax return to ensure the claim is valid. Businesses that have not yet complied with the requirements will receive letters from HMRC warning that their R&D claim is invalid unless they amend their returns.

HMRC recently notified agents and advisors that almost half of all claims received between 8 August and 3 September have been submitted without the required additional information leading to an invalid submission. The AIF is required for claims for both SME R&D tax relief and the R&D expenditure credit (RDEC).

“Between 2020-21 there were 3,800 R&D claims to a value of £175m submitted in Scotland and mainly from the SME sector,” added Ms Monaghan. “Based on the current 50% rate of form omission or inaccuracy, Scotland’s businesses could face significant delays on around £100m of vital R&D tax credit reliefs during the next 12 months.

“The information needed and the process for submitting an AIF should be well known now after HMRC delayed its initial roll out by over 4 months. HMRC’s initial knowledge sharing direct to businesses could have been significantly better and would have dramatically improved the form introduction process if HMRC had worked collaboratively with advisors and businesses.

Ms Monaghan also highlighted that tax relief for SMEs investing in R&D expenditure spending has reduced since 1 April 2023 and that as part of its campaign to identify malpractice HMRC is now requiring businesses to provide much more information than previously.

“HMRC investigations into R&D tax relief have significantly increased and levels of error and fraud are estimated at around £1.13 billion for 2020-21, which is equivalent to 16.7% of claims” she said. “Making a successful R&D tax credit claim is now more onerous and bureaucratic than ever, as is the risk of making an administrative mistake. We would encourage any business looking at making a claim to seek professional advice from an expert in this increasingly complex area as the cost of getting it wrong can be significant.”