One Year On: The Impact of HMRC’s Additional Information Form (AIF)

A year has passed since HMRC implemented the additional information form (AIF). Its impact on the research and development (R&D) landscape has seen greater diligence and transparency in preparing R&D claims but has also highlighted many struggles for companies in meeting the new level of information required.  

This Tax Talk focuses on the AIF and its significant impact on the R&D tax landscape, particularly in terms of the increased administrative complexity it has brought to the claims process. Future editions of Tax Talk will delve into a range of related topics, including, but not limited to, compliance, generosity, and Claim Notification Forms, offering further insights into the evolving R&D tax landscape.

What Has Changed?

From 8 August 2023, HMRC made it mandatory for all businesses claiming R&D tax relief to submit an AIF. The change applied to all claims submitted from 8 August, regardless of their accounting year-end.

Before the introduction of the AIF, there was no requirement, just a recommendation, to provide project information and cost analysis to support the provision of the R&D tax credit or expenditure credit in the company’s tax return.

It is now mandatory for companies to submit the relevant information via the form in advance of filing the corporation tax return containing the R&D provision. If the form is not submitted, HMRC views the claim as submitted in error and will remove the addition of the R&D tax credit or expenditure credit from the company’s tax return. 

What Additional Information Is Required?

The form requires R&D projects to concisely detail the scientific or technological advance, baseline, uncertainties, and activities undertaken, while also requiring the breakdown of costs on a per-project basis, including details of qualifying indirect activities.

The requirements apply to claims made under both the SME (enhanced tax relief) and RDEC (R&D Expenditure Credit) schemes. If a claim is made under both schemes, the AIF contains separate sections for each scheme, requiring details regarding the number of projects and qualifying expenditure for both.

Moving forward, claims with accounting periods beginning on or after 1 April 2024 will fall under the merged scheme R&D expenditure credit (RDEC) or the enhanced R&D intensive support (ERIS). Claimants must be aware that they cannot claim under both schemes for the same expenditure, and those eligible for ERIS must choose which scheme to pursue.

The continually changing requirements, especially with different rules applying to different accounting periods, make it particularly challenging for companies to navigate the scheme’s complexities while ensuring their claims are accurate and compliant.

What Is the Impact?

The preparation of R&D claims now requires more input than ever before, and there is no doubt that the process has become more demanding, putting additional strain on companies seeking to benefit from R&D tax relief.

Over a year into the changes, the R&D landscape has shifted towards a more proactive and strategic approach to R&D claim preparation. Businesses now recognise the importance of advanced planning for their claims, including robust recordkeeping and implementing processes to capture relevant information more effectively to help streamline the claim preparation process. However, despite the efforts of the industry to adapt, many continue to struggle with the increased demands for information.

In December 2023, four months into the new requirements, it was recorded that since 8 August 2023, 3,652 claims had been submitted with no AIF filed. That is an average failure rate of 22% across 2,100 different agents, with only 1,957 claims refiled.

Whilst no further figures have been released regarding the AIF, the burden of compiling the necessary information remains a significant challenge for many businesses. Amidst ongoing changes to the scheme and updates to the AIF form itself, the process remains prone to error, leaving many companies and their agents struggling to comprehend and meet the new requirements.

What Is the Impact on HMRC?

The implementation of the AIF has significantly contributed to HMRC’s goal of better targeting non-compliance in the R&D tax relief scheme by providing a more comprehensive understanding of the nature and scope of a claimant’s R&D endeavours.

Earlier this year, HMRC disclosed that, on average, they aim to investigate 20% of R&D claims. The introduction of the AIF has provided HMRC with a more effective tool to screen claims, as each submission now includes richer and more consistent data. This enhanced consistency allows HMRC to more accurately identify claims that may require further investigation and better detect non-compliance in a claim, aiding in the combating of error and fraud within the scheme.

With HMRC’s aim of one in five claims undergoing an enquiry, it is crucial for companies to ensure that the information they provide is compliant and precise. This safeguards their claims and ensures they receive the deserved recognition for their advancements in science or technology.  

Why Is It Beneficial to Consult with an R&D Tax Specialist?

The R&D scheme has undoubtedly become more challenging and complex to navigate. With the intricacy of eligibility criteria, document requirements, and compliance regulations, many companies are finding the process a daunting task.

In light of these complexities, the experience of an R&D tax specialist has become indispensable for companies seeking R&D tax relief. The specialists possess the knowledge and skill to identify and interpret the nuances of a claim. They aid companies in producing concise yet impactful AIF submissions that provide a compliant and solid foundation for a tax relief claim, which enhance the claim’s credibility whilst helping to minimise the risks of enquiries and scrutiny faced within the R&D landscape.

At Ryan, our R&D tax relief specialists have in-depth knowledge of R&D tax regulation and the ever-evolving eligibility criteria and compliance requirements. We will perform an eligibility assessment and detailed analysis of your R&D projects, expenditures, and documentation to ensure you meet the criteria set by HMRC. We will guide you through the process and assist in preparing all required documentation, including technical narratives, financial records, AIF, and supporting evidence.

Throughout the process, we will also provide regular support, guidance, and updates on current and emerging requirements to ensure that your R&D claims are compliant from both a qualification and filing perspective.

Our services play a pivotal role in helping companies harness the full potential of R&D incentives while ensuring they adhere to regulatory and compliance requirements.