In encouraging business innovation, Research and Development (R&D) tax credit relief has served as a critical tool for companies looking to invest in R&D projects. However, the past 24 months have seen an exceptional number of updates to the R&D tax credit schemes, making it increasingly challenging for businesses to stay abreast of the changes and plan their R&D activities efficiently.

Despite its absence from the Chancellor's spring budget announcement, subsequent documents have shed light on the timing of the overhaul in the R&D tax credit system. It has been confirmed that the new, unified scheme will be introduced for accounting periods commencing on or after 1 April 2024, despite rumor that it may have been delayed 12 months. Businesses will need to take heed of these changes over the next few months to ensure they are up to speed; ready for their first submission under the new regulations in 2025.

Despite the gravitas of this announcement, businesses must not neglect previously announced changes. There is one change in particular that companies need to pay attention to now.

R&D Tax Credit Pre-notification: Key Details and Implications for Businesses

One critical change announced in 2023 demanding immediate attention from businesses revolves around the R&D tax credit prenotification requirement. This adjustment requires companies to proactively inform HM Revenue & Customs (HMRC) of their intention to claim R&D tax credits for their activities within 6 months of the end of the accounting period in which the R&D took place. Organisations, with a financial year ending on 31 March, will soon find themselves with a mere six-month window to notify HMRC of their claim for the period ending 31 March 2024.

The requirement for R&D tax credit prenotification is a significant shift. It mandates companies to take a more forward-looking approach in their R&D tax planning, ensuring they are well-prepared to inform HMRC of their claims in advance. This process involves documentation of the R&D activities undertaken, aligning them with the eligibility criteria set forth by HMRC.  It is not a simple tick box exercise, and requires claimant company’s to take the necessary care and attention the form demands, as a rushed incomplete form may increase the chances of a HMRC enquiry when the full claim is submitted.

The tight timeframe presents a formidable challenge for companies, especially those that are not current with their R&D tax credit claims. Some businesses are still in the process of submitting claims for activities conducted in 2022. This backlog can complicate the timely submission of the pre-notification form, risking potential loss of relief for the relevant periods.

HMRC have confirmed that if the pre-notification was required but not completed within the relevant time periods, that this will render the R&D claim invalid, and it will be removed by HMRC as an “error” to the return.

Identifying the Companies Required to Pre-notify HMRC for R&D Tax Credit Claims

If your company falls under one of these two categories, you will need to take action and pre-notify HMRC of your intent to claim future R&D tax credits.

• Companies claiming R&D tax credits for the first time;
• Companies that have not submitted a claim in the three year period preceding the end of the claim notification period.

The above exemptions are complex, and care should be taken to ensure that you do not incorrectly believe that you are exempt from the pre-notification requirement.  We understand that many companies plan to pre-notify even if they believe they may be exempt from the requirement, as a precaution.  However, care must be taken to ensure that the pre-notification form (which requires details of the R&D project) is prepared carefully to not increase the chances of an instant HMRC enquiry upon submission of the full claim.

Matthew Jones, Managing Director at LimestoneGrey commented:

‘Navigating the maze of R&D tax credit reform can indeed be daunting. However, with the right advice and guidance, it is possible to manage these changes effectively, ensuring that your company does not miss out on valuable tax relief. Expert consultancy services can provide the necessary insight and support, helping businesses understand the new requirements and how best to comply with them. By adopting a proactive and informed approach, companies can navigate through these changes with minimal disruption, maximizing their R&D tax credit benefits and continuing to innovate and grow.’

For more insights and assistance with your Pre-Notification for R&D Tax Credits, contact us at LimestoneGrey