HMRC R&D consultative committee meeting - September 2019

This article provides a structured recap of the key points discussed in the recent HMRC R&D communication meeting. It covers policy changes, operational updates, agent standards and technical clarifications relevant to advisers and businesses preparing R&D tax credit claims. Full minutes and speaker slides will be published on GOV.UK in the coming weeks.

Policy update on SME abuse prevention and RDEC advance clearance

HMRC is continuing its review of the 87 responses submitted as part of the consultation on Preventing Abuse of the R&D Tax Relief for SMEs. This consultation followed the 2018 Budget announcement that the amount of payable tax credit a loss making company can receive in one period would be capped at three times its PAYE and NIC liability.

Although the cap was originally scheduled for introduction in April 2020, HMRC has indicated that amendments to this measure are likely. These will be confirmed in the next Budget.

HMRC also shared an update on the RDEC Advance Clearance pilot, which has been running with 12 companies across sectors including pharmaceuticals, manufacturing and financial services. The pilot offers three year certainty covering the claim year and two future periods. Several complex issues have been identified during the pilot, including EPW arrangements and examples of non qualifying projects. A formal report on the pilot is expected in May 2020.

‍R&D claim processing: WMBC and BTandC transition

Currently, the Wealthy Mid Sized Business Compliance team (WMBC) handles all R&D claims. From 30 September, this responsibility will transition to Business Tax and Customs (BTandC), which also processes corporation tax returns, amendments and repayments.

Because BTandC has a significantly larger operational team, HMRC expects this shift to support future growth in the R&D tax relief scheme. WMBC will continue to provide technical support where needed.

By the time of handover, HMRC anticipates that 99 percent of all outstanding R&D claims will be up to date, clearing the backlog experienced over the past nine months. From that point, HMRC expects 28 day processing times to become standard for both SME and RDEC claims, although repayment timings may vary due to security checks.

HMRC also reported a substantial rise in SME claim volumes. In March 2019, SME submissions increased by 160 percent, rising from around 3,000 claims in March 2018 to roughly 8,000 in March 2019. Another spike is expected in December.

‍Agent standards and professional expectations

HMRC discussed ongoing concerns regarding inconsistent standards among some R&D advisers. The Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT) are currently preparing guidance to help R&D agents understand how professional standards such as PCRT apply within the R&D tax relief context.

Further information on HMRC’s expectations can be found under HMRC Agent Standards on GOV.UK.

‍Large business update and claim processing timelines

The Large Business team has been supporting WMBC in clearing older RDEC claims. Only 31 claims remain outstanding. Once processed, there should be no RDEC claims outside normal timelines.

From 30 September, both SME and RDEC claims should be processed within 28 days, although claimants should not expect repayment within that period. Repayments are subject to additional randomised security assessments carried out by separate HMRC teams.

HMRC expects a surge of RDEC claims later in the financial year. Since April 2019, only 490 claims have been submitted, compared with 2,500 in the entire 2018 to 2019 period. A significant increase is anticipated in December 2019 and March 2020.

Other operational updates included:

• Low uptake of Digital Forms, mostly used by unrepresented claimants
• Confirmation that CDIO only becomes involved in an enquiry when instructed by an R&D Specialist and does not make the final decision

‍Technical updates and clarifications

HMRC shared several technical points to support accurate and compliant R&D tax credit claims:

Dispersed and displaced R&D

Guidance under s104W will help clarify subcontractor relationships and identify the correct party to claim within group structures.

Two part SME test

HMRC highlighted that many advisers have recently misinterpreted the SME status rules. The flow chart at CIRD 92850 was referenced as a valuable resource.

Corporate partners and vicarious R&D claims

There was a short discussion on how corporate partners may claim R&D relief through a partnership structure under s46 CTA 2009 and s104A.

Employer Allowance

Questions were raised regarding whether the £3,000 Employer Allowance should be treated as Notified State Aid. HMRC did not reach a definitive conclusion but suggested it is unlikely to be classified as such. Claimants were reminded not to include the relevant proportion of the allowance when calculating eligible R&D staff costs.

Enquiry handling and use of standard questions

Some advisers raised concerns about the increased use of standardised enquiry templates. Examples included requests asking claimants to restate information already present in their technical narrative.

HMRC acknowledged these concerns. Specialists have been instructed to tailor their questions to the specific claim. Template questions should only be used where the narrative does not adequately explain why the advance required resolving uncertainties that a competent professional could not readily overcome.

Summary

The meeting provided a detailed overview of upcoming policy changes, operational improvements and technical expectations related to R&D tax relief claims. With HMRC preparing to streamline processing and tighten professional standards, it is more important than ever for advisers and businesses to maintain accurate documentation and stay informed about legislative developments.