Budget 2026 – R&D News
We wanted to share the news for R&D reliefs announced at the Budget on 28 October and some HMRC updates from the R&D Policy Team.
The government is aiming to simplify the administration of R&D tax reliefs “to improve the customer experience and reduce administrative burdens for businesses”.
The government’s 2024 Corporate Tax Roadmap commits to stability for the R&D reliefs, and there is no suggestion of any shift in the R&D schemes themselves which would cause further disruption. The message is that measures previously introduced to tackle perceived high levels of error and fraud in R&D tax reliefs have now largely accomplished their aims.
It has however been acknowledged that over recent years the R&D claims process has become “burdensome, unclear and over-complicated, with multiple forms that have intersecting deadlines and requirements. Claimants are also unable to find out easily how their claim is progressing.” Also, that “the R&D relief legislation is unclear in some places, for example the ERIS (Enhanced R&D Intensive Support) intensity ratio, and complex in others.”
HMRC is therefore focusing on “identifying opportunities to simplify the customer journey, address design issues at source and reduce unnecessary burdens while preserving the information and safeguards needed to administer the reliefs effectively.”
The imminent change to come that has caused most celebration concerns the highly unpopular Claim Notification Form.
The rules around claim notification have always been far too complex and this unnecessary hurdle has caused the loss of some claims for worthy companies investing in R&D.
There is also anecdotal evidence of HMRC errors in rejecting claims on this basis, due to the difficulties of checking whether notification is or is not required in a particular case. HMRC was advised not to introduce claim notification in the House of Lords Subcommittee recommendations but went ahead anyway in 2023 as part of its package of changes intended to reduce error and fraud.
The good news is that for R&D claims submitted on or after 1 April 2027 these rules will be removed and there will no longer be a requirement to notify claims in advance, although we await precise details.
From 1 April 2027, the government will remove the R&D Claim Notification Form (CNF) requirement for claims made on or after that date. Claimants will therefore no longer have to notify HMRC in advance that they intend to make an R&D tax relief claim. The requirement remains in place for claims until then.
Claimants and agents must continue to pre-notify claims while the current requirement remains in force, so it’s important to consult a reputable advisor at an early date, and certainly within 6 months of the end of the accounting period for which an R&D claim is intended.
Government estimates that around 26,000 businesses a year will benefit from the removal of the requirement to pre-notify a claim.
Additional Information Form
From autumn 2027, HMRC will rationalise the Additional Information Form (AIF) that companies must submit to HMRC in support of an R&D tax relief claim.
HMRC aims to improve the form to reduce unnecessary duplication, give greater clarity on contracting and externally provided workers, and support companies regarding the Enhanced R&D Intensive Support intensity ratio.
As members of HMRC’s R&D Communication Forum, Ad Valorem Lumina will be feeding practical suggestions for simplification to the R&D Policy Team.
Longer Term: Simplification of R&D legislation
As part of work announced at Budget on Corporate Tax Simplification for Business Investment, the government is considering the design of the whole claims process.
Ad Valorem Lumina will be contributing to stakeholder views on how to simplify the R&D relief legislation to make the rules easier to comply with and better deliver the policy aims.
HMRC is already aware of some key difficulties:
- The ERIS intensity ratio – eligibility for ERIS depends on the company’s R&D expenditure meeting a certain proportion of its total expenditure. Many consider that the definition of total expenditure here is unclear. In addition, R&D and total expenditure are aggregated for this purpose with other connected companies and the definition of “connected” is complex to apply.
- The PAYE / NIC cap – under both schemes the amount of payable R&D relief available is limited by the company’s PAYE and NIC liability. There is an exemption from this cap, which is intended to support smaller, growing businesses but may not always apply where it should.
- Going concern status – this is a requirement for relief which is intended to ensure that the relief supports only viable businesses, but a company can lose this status for technical reasons where a viable trade still exists.
The government wants to reinforce the UK’s position as one of the best places in the world to start, scale and grow a business. It’s good to see this commitment to making it easier to access R&D tax reliefs so companies can innovate.
Further details of the government’s Budget announcements are set out in the Government response to the Tax Support for Entrepreneurship: Call for Evidence.
(E) enquiries@advaloremgroup.uk (T) 01908 219100 (W) advaloremgroup.uk
