Research & development tax relief – amended claims for staff costs

HM Revenue and Customs (HMRC) has updated its guidance on the Research & Development (R&D) tax treatment of reimbursed employee expenses allowing companies to re-submit affected claims.

Previous HMRC guidance disallowed expenses initially incurred by the employee, most typically travel and subsistence. The updated guidance now allows companies who excluded these amounts to revisit their claims outside of the normal statutory filing deadline.

There is a limited window of time to 31 January 2018 to amend prior year R&D claims for accounting periods which ended between 9 October 2012 and 31 January 2016 as long as the original claim was made on or after 9 October 2014 (the publication date of the incorrect guidance). In reality this will most obviously affect accounting periods ended between 31 October 2012 and 31 January 2016.

The underlying principles:

  • the expenditure must be incurred for R&D purposes;
  • the expenditure must be incurred by the employee and subsequently reimbursed by the company; and
  • the expenditure must be a cost of employing the relevant staff member and incurred by the employee to perform the requirements of their job, meaning that say home to work travel would be excluded.

What does this mean for business?

In our experience these costs tend to be a small part of qualifying claims. Most significant travel costs tend to be incurred directly by the employer and are hence excluded. However, from time to time these costs can be material, especially when a management team is snowed under or a project is fast moving requiring immediate actions, train tickets etc. In those cases it is worthwhile looking again at the relevant expenditure – you’ve got until 31 January 2018 for “back” claims and don’t forget new claims can include this type of expenditure also.

For more information on how RSM UK’s R&D team can advise on identifying the relevant qualifying expenditure or review any amended claims, please comment below or get in touch with Sheetal Sanghvi.