Claims deadlline

Firms urged to avoid missing out on R&D tax relief

Gemma Monaghan: firms should act promptly

A substantial number of Scottish businesses could potentially miss out on vital research and development (R&D) tax relief by failing to meet new requirements to pre-register their intention to make a claim, according to a tax expert.

R&D claim numbers in Scotland already substantially lag the UK as a whole, says Gemma Monaghan, partner and national head of R&D Tax at Azets.

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.

However, the new deadline will also affect established businesses including companies starting R&D, businesses submitting a first claim following an acquisition, or intragroup movement of R&D activity to a different company.

It is likely that the stringent new regulations could starve innovative Scottish businesses of essential funding.

The change introduced by HM Revenue & Customs (HMRC) aims to clamp down on the abuse of the system and increase visibility of potential frivolous claims and rogue advisers. The new regulations were introduced on 1 April last year and as such any businesses with year ending 31 March 2024 have until 30 September to register.

The changes apply to companies claiming for the first time or which have not made a claim in more than three years.  Following notification, companies still have up to two years following their financial year end to claim.

Ms Monaghan said: “This new measure is being overlooked following a suite of R&D tax changes such as the merger of 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% 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 6-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 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, otherwise mistakes may be made, or opportunities missed.”

Ms Monaghan added: “There are three million active limited companies across the UK, of which 90,000 companies claimed R&D Tax Relief in 2023, amounting to 1.6% of all private sector companies.

“However, in Scotland just 4,200 claims were made – equating to just over 1% of all private sector companies.  Scotland has many innovative businesses but more need to be encouraged to consider making R&D claims, but to do so in the correct manner.”

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% on the previous year’s total.

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