For many years companies claimed for those expenses incurred by directors and employees directly and actively engaged in R&D projects as part of the staff costs. Since 2013 there have been three changes of guidance by HMRC which may have meant that companies & advisers have not claimed these depending which version of the guidance they were following.
Following a review of the practice in this area in 2013 HMRC published new guidance in October of 2014 which sought to clarify the position as understood by advisers & claimants up to that point. As a result of applying the guidance that said that “ reimbursed expenditure will only qualify for R&D tax relief if it falls within one of the specific classes of expenditure as outlined in the legislation” companies following this will not have claimed expenses for expenditure on items such as travel & subsistence even though it was incurred as a result of the R&D project, on the basis that this was not a qualifying class of expenditure under the legislation. It had been stated by HMRC that any claims including reimbursed expenditure would be enquired into.
Following extensive lobbying in the following years on the nature of HMRC’s technical justification for this, and a subsequent review of their position, HMRC revised their guidance again in October 2016. This enabled companies to more or less claim what they had been claiming in earlier years with respect to those expenses paid because of the director or employee’s employment requiring the expense to be incurred in carrying out the job. Because R&D tax relief claims must be made within two years from the end of the accounting period to which they relate, for many companies it was not possible to simply amend & refile the claim for all the affected years.
As a result of the perceived unfairness in this situation HMRC have recently announced that it will accept late claims for the inclusion of reimbursed expenses within an R&D claim, subject to certain conditions.
The newly announced procedure
This practice announced by HMRC will only apply to claims for R&D relief originally made on or after 9 October 2014, in relation to periods ending between 9 October 2012 and 31 January 2016.
In addition the company will need to show that the company that the original claim did not include the expenditure now claimed because it relied on the October 2014 HMRC guidance but would have done if, at the time it claimed, it had been able to rely on the revised HMRC guidance from October 2016. However these revised claims must be submitted before 31 January 2018.
What does this mean for companies?
You should review any claims made for accounting periods ending between 9 October 2012 and 31 January 2016. If you ascertain that the company could have made a claim for reimbursed staff expenses but did not , as a result of following the guidance issued by HMRC on 8 October 2014, then you may be able to make a claim for these now by retrospectively amending the claims made. Where you are not within the normal two year claim limit for the amendment of claims then this procedure will allow up until 31 January 2018 to make a claim.
Due to the way the changes in guidance were made and publicised it is the case that some taxpayers will, to date, have been potentially disadvantaged for some accounting periods. We welcome this special provision that will enable those companies affected to rectify the position.
If you would like to know more about this, or discuss it’s application to your company, with a view to making retrospective claims then please contact John Moore on 0207 292 8850 or at firstname.lastname@example.org
This briefing is prepared by Kingly Brookes LLP, a limited liability partnership. For further information on any of the material contained in or referred to in the briefing, please contact us. This briefing note is intended to keep our readers up to date with the developments in this area, but it is a general guide only and is not intended to be a comprehensive statement of the law and practice in this area. No liability is accepted for the opinions it contains or for any errors or omissions.