Overview Of The HMRC Expert Advisory Panel For R&D Tax Relief

Key Objectives Of The R&D Expert Advisory Panel

As outlined in the published Spring Budget 2024, the newly announced R&D Expert Advisory Panel will aim to aid HMRC in the following areas:

• Support Administration Of R&D Tax Relief Reliefs: The primary objective of the panel is to assist HMRC in the efficient administration of R&D tax reliefs. This support includes helping HMRC navigate complex issues related to R&D, ensuring that the administration of tax reliefs is effective and compliant with regulations.
• Providing Insights Into Cutting-Edge R&D: The panel will be tasked with offering insights into the latest advancements in critical sectors such as technology and life sciences. This objective will allow HMRC to stay informed about current trends in research and development, enabling it to provide more relevant and accurate guidance.
• Updating And Clarifying Guidance For Claimants: A key goal of the panel is to work closely with HMRC to ensure that the guidance for R&D tax relief is current and clear for claimants. This objective involves reviewing existing guidance and providing recommendations for improvements, reducing confusion and errors among businesses seeking tax relief.

Why Is The New Advisory Panel Needed?

The HMRC Expert Advisory Panel for R&D Tax Relief was established to tackle the growing complexity of managing R&D tax reliefs, especially in rapidly evolving fields like technology and life sciences. The National Audit Office highlighted that HMRC was under-resourced in handling R&D tax relief, leading to inefficiencies and unclear guidance for businesses. This panel aims to address these issues by providing expert insight to help HMRC maintain accurate, updated guidance for claimants. It’s a step toward tightening HMRC’s approach, reducing errors, and improving clarity in the R&D tax relief system.

Who Will Make Up HMRC’s New Advisory Panel?

Whilst it is yet to be confirmed exactly who will make up the new advisory panel, it will likely consist of a diverse group including experts from industry, academia, and government, as well as representatives from professional organisations and industry bodies specialising in R&D.

However, HMRC will be cautious about repeating the problems that arose with the earlier “R&D Tax Credit Consultative Committee”. This committee’s announcement led some R&D advisors to make false claims about exclusive membership and direct influence over government policy, resulting in misleading marketing materials that implied privileged access to HMRC. The widespread confusion and misrepresentation compelled HMRC to rename the committee to a “forum”, effectively negating any claims of exclusive membership. These misleading tactics not only caused confusion among businesses seeking R&D tax relief but also undermined the credibility of the original committee. Therefore, HMRC will want to ensure the new advisory panel operates transparently and prevents similar issues from arising.

Other Changes To The R&D Scheme

The establishment of the R&D Expert Advisory Panel comes at a critical time, with significant changes to the R&D scheme coming into effect for accounting periods starting on or after the 1^st of April 2024:

• The New R&D Merged Scheme: Both the SME and RDEC schemes will be merged into one unified scheme applicable to all claimants. The new Merged Scheme will be an above-the-line credit with an effective rate of between 14.7% and 16.2% depending on a company’s profitability. The new scheme will also see the removal of subsidised R&D restrictions allowing companies with grant-funded R&D to claim the full relief.
• Additional Relief For R&D Intensive Companies: Loss-making R&D-intensive SMEs will see the threshold for R&D intensity drop from 40% to 30% of total expenditure. This change enables more SMEs to qualify as R&D intensive and access higher claim rates. Companies that meet this threshold will be eligible for an 86% enhanced deduction on qualifying R&D expenses, as well as a repayable tax credit of 14.5%. With this combination, the effective rate will be 26.97% for companies that qualify.

• Subcontracted R&D: HMRC has simplified its approach to determine who qualifies for R&D relief in cases where R&D activities are outsourced to a third party. The new approach will allow the company that makes the decision and bears the risk of conducting eligible R&D activities to have access to R&D tax relief. It is important to have evidence of the intention to conduct R&D in contracts or communication between the two parties.

• Overseas Expenditure: Any costs relating to overseas subcontractors will no longer be deemed eligible R&D expenditure for tax purposes unless under exceptional circumstances. Only in circumstances where it is not possible to conduct R&D activities in the UK will be deemed qualifying overseas expenditure.

Conclusion

As the UK government seek to strike a balance between encouraging innovation and preventing error and fraud, if implemented correctly, the R&D Expert Advisory Panel could become a cornerstone in shaping the future of R&D tax relief. The panel’s role in guiding HMRC policies and clarifying regulations could be instrumental in creating an environment where businesses can thrive, innovate, and contribute to the country’s economic growth.