In the Spring Budget 2024, the UK government unveiled the creation of an expert advisory panel for R&D Tax Relief, a move aimed at advancing innovation while ensuring the proper management of tax claims. This panel is designed to provide HMRC with expert guidance, streamline the administration of R&D tax reliefs, and ensure compliance with ever-evolving tax legislation. In this article, we will explore the key objectives of the new advisory panel, its necessity, and how it will impact the R&D tax relief framework.

What is the HMRC Expert Advisory Panel for R&D Tax Relief?

The newly established HMRC Expert Advisory Panel for R&D Tax Relief will play an essential role in assisting HMRC with the administration of R&D tax reliefs. This initiative is part of the UK government’s ongoing effort to promote innovation while also reducing fraudulent or incorrect claims in the R&D tax system.

The panel’s primary aim is to support HMRC in navigating the complexities surrounding R&D claims. It will also focus on providing valuable insights into cutting-edge sectors, such as technology and life sciences, and ensuring that tax relief guidance is up-to-date, clear, and easily understood by businesses seeking to benefit from R&D tax credits.

Key Objectives of the Panel

The HMRC Expert Advisory Panel will work closely with HMRC to achieve several objectives:

• Support R&D Tax Relief Administration: The panel will assist HMRC in managing the complexities associated with R&D tax claims, helping ensure effective, streamlined administration of the tax reliefs.
• Provide Expertise on Emerging R&D Fields: The panel will offer insights into the latest trends in industries like technology and life sciences, ensuring that HMRC’s guidance remains aligned with advancements in these critical sectors.
• Update and Clarify Guidance for Claimants: A key responsibility of the panel will be to regularly review existing guidance for R&D tax relief, making recommendations to improve clarity and reduce the risk of errors for businesses.

Why is the Advisory Panel Needed?

The creation of the advisory panel addresses several challenges facing the R&D tax relief system. The National Audit Office previously highlighted that HMRC was under-resourced in handling R&D claims, leading to inefficiencies and unclear instructions for businesses. This new panel aims to alleviate those issues by providing expert advice to keep guidance current, accurate, and easy to follow, thereby reducing errors and improving the overall efficiency of the system.

Who Will Be on the HMRC Advisory Panel?

While the exact composition of the panel has yet to be confirmed, it is expected to consist of a diverse range of experts. This will likely include professionals from academia, industry, and government, as well as representatives from R&D-focused organisations. HMRC will aim to ensure transparency in the panel’s operation, avoiding the issues faced by previous advisory bodies, such as the “R&D Tax Credit Consultative Committee,” which suffered from misrepresentation and misleading claims about access to HMRC.

Other Changes to the R&D Scheme

Alongside the introduction of the advisory panel, significant changes to the R&D tax relief scheme are set to take effect in April 2024:

• The New Unified R&D Scheme: The SME and RDEC schemes will merge into a single scheme, offering an above-the-line credit with rates ranging from 14.7% to 16.2%. This merger also removes restrictions on subsidised R&D, allowing companies with grant-funded research to claim the full relief.
• Enhanced Relief for R&D-Intensive SMEs: SMEs with a high proportion of R&D expenditure will benefit from a lower threshold for qualifying as R&D-intensive, dropping from 40% to 30%. This change allows more businesses to access higher claim rates, including an enhanced deduction of 86% for qualifying R&D expenses.
• Subcontracted R&D: The new rules simplify how HMRC determines eligibility for tax relief when R&D is subcontracted. The company responsible for the decision-making and bearing the risk of R&D will now be able to claim relief, provided there is evidence of intent in contracts or communication.
• Overseas Expenditure: Expenditures related to overseas subcontractors will no longer be eligible for tax relief unless specific conditions apply. Only when it is impossible to conduct R&D in the UK will overseas costs be deemed eligible.

Conclusion

The establishment of the HMRC Expert Advisory Panel marks a significant step toward refining the UK’s R&D tax relief system. With its expert guidance, the panel will help ensure the system becomes more efficient, transparent, and accessible to businesses. By offering up-to-date insights and clarifying regulations, the panel can play a pivotal role in helping businesses navigate the complexities of R&D tax relief, ultimately contributing to the country’s growth and innovation. If implemented effectively, the panel will help shape the future of R&D tax relief, promoting innovation while ensuring compliance.