The Autumn Budget 2024: What it Means for R&D Tax Credits

Stability After Years of Change

The industry has endured a tumultuous period, with continual tweaks and overhauls affecting how businesses approach R&D claims. With this budget, businesses now have some stability. This pause allows for smoother adaptation and a clearer path to efficient and effective claim submissions.

However, while the main focus on R&D tax relief rates remains unchanged, there are a couple of updates buried in the details of the budget that deserve attention.

Consultation Planned for Spring 2025

One notable update is the government's intention to hold a consultation in Spring 2025 concerning the potential expansion of Advanced Assurance for R&D claims. While specific details are yet to be released, this initiative could signal further support for companies seeking clarity and assurance when filing claims. We’ll share more updates as soon as they become available.

Updates on Compliance Approach

HMRC has also provided additional information regarding their compliance approach, building on their last update in July. While not surprising, it does reveal some key figures that indicate how compliance is being managed:

• Mandatory Random Enquiry Programme (MREP): This programme is ongoing and likely to continue for the foreseeable future.
• Compliance Check Rate: In 2023-24, 17% of claims were subject to compliance checks, with an average closure time of 246 days. This is up from 10% and 269 days, respectively, in the previous year.
• Tax Recovery: There was a significant 53% increase in the total amount of tax recovered, which rose to £441 million.

These figures highlight HMRC's intensified focus on R&D compliance and its efforts to ensure claims are legitimate and accurate.

Rising Complaints and HMRC’s Response

Interestingly, the number of complaints directed at HMRC regarding their compliance process has risen. In 2022-23, the complaint rate was 2.5%, but this jumped to 4.3% in 2023-24, with nearly half of these complaints being upheld. This increase indicates that businesses are finding the process challenging, which has prompted HMRC to make improvements.

To address these concerns, HMRC has initiated projects to bolster its R&D compliance activities, emphasizing:

• Improving Guidance and Communication: Ensuring that information provided is clear and accessible.
• Enhanced Letter Writing: Making communications more transparent and user-friendly.
• Consistency in Using HMRC Powers and Penalties: Standardizing the application of rules and consequences.
• Clear Escalation Routes: Providing clearer paths for handling complex cases, including meeting requests for intricate matters.
• Additional Assurance for Complex Cases: Offering further verification for claims that involve more intricate technical details.

These efforts suggest that HMRC is taking steps to streamline and improve the experience for claimants, potentially reducing the frustration many have felt during the enquiry process.

Preparing for the Future

The best way to avoid complications with HMRC is still to submit well-prepared, thorough claims. With the stability provided by this budget, advisors can focus on mastering the existing schemes, such as the Research and Development Expenditure Credit (RDEC) and the Enhanced R&D Incentive Scheme (ERIS), without the pressure of imminent new changes.

A Quick Look at Changes to the Additional Information Form

It's also important to mention that HMRC recently updated the Additional Information Form for R&D claims. While some of these changes are administrative (such as requiring more comprehensive business details), others demand more detailed cost breakdowns for claims under the Merged or ERIS Schemes. Businesses need to stay informed and prepared, as these adjustments can impact how claims are compiled and submitted.

Final Thoughts

The Autumn Budget 2024 might not have introduced dramatic changes, but it provided much-needed stability. As we move forward, staying informed, prepared, and meticulous with R&D claims will remain key. With HMRC's commitment to refining its processes and a consultation on the horizon, there is hope for a smoother, more transparent experience in the future.