Although the definition of R&D for tax purposes remains the same, the Merged scheme (also called “new RDEC” by HMRC) and ERIS scheme introduce restrictions on overseas expenditure. The changes to the AIF mainly focus on helping HMRC assess whether these restrictions have been properly applied in claims. The ERIS scheme also applies special conditions to companies registered in Northern Ireland, where these overseas restrictions do not apply.
It’s important to note that these changes only affect claims for accounting periods starting on or after 1 April 2024.
Key Changes to the AIF Submission Process
1. New Question: Accounting Period
The first noticeable change in the process is the introduction of a question about whether the accounting period for the claim starts before or after 1 April 2024. Once you answer this, the familiar Government Gateway ID login screen appears. Your government Gateway ID must also be connected to either an agent services account or a business account.
2. Business Details Section
Next, in the business details section, there’s now a specific question asking whether the company is registered in Northern Ireland. You’ll also be required to provide the company number and registered address.
3. Contact Details Section
Not much has changed here, except that you’ll now see a screen asking for consent to communicate with HMRC via email about your R&D claim.
4. Claim Details Section
When you reach the claim details, you’ll encounter an information screen outlining the relevant R&D schemes, along with links to HMRC guidance. It’s important to note that a single project may include qualifying expenditure for both ERIS and the Merged scheme. If the claimant company meets the criteria for ERIS, it’s up to you to decide how to split costs between the two schemes.
For companies registered in Northern Ireland, there are additional questions about trade in goods and the ERIS scheme. These questions are designed to ensure that the company doesn’t exceed the ERIS scheme’s net benefit threshold of £250,000 over a three-year period. If the company’s benefits under ERIS exceed this threshold, some expenditure may need to be claimed under the new RDEC scheme, which imposes the overseas expenditure restrictions.
5. Cost Breakdown: Merged (new RDEC) and ERIS Schemes
The next major change is in the sections that collect cost data for both the Merged and ERIS schemes. While the information requested is mostly the same for both, the key difference is that you must now provide detailed evidence to show that overseas expenditure restrictions have been applied correctly.
You’ll be asked how much of the qualifying expenditure relates to activities conducted overseas, and how much of the EPW and subsequent subcontracted costs are tied to overseas work. If overseas expenditure is included, you’ll need to explain how it qualifies despite the restrictions. Additionally, for contracted-out activities, you’ll be required to provide details of the top ten contractors incurring qualifying costs—listing each company’s name, whether it’s registered in the UK or overseas, and, if available, its company number.
Preparing this level of detail will take some planning, as it requires a thorough understanding of project activities and a more granular breakdown of EPW and contractor costs.
6. R&D Project Narrative
Fortunately, the definition of R&D hasn’t changed. So, the narrative you provide to support the qualifying activities will be familiar if you’ve prepared claims in the past.
Key Takeaways
The recent updates to HMRC’s AIF submission process mainly focus on ensuring that overseas expenditure restrictions are correctly applied. The new guidance surrounding contracted-out R&D activities gives HMRC a way to prevent “double dipping”—where the same R&D costs are claimed by both the customer and its subcontractor.
While these requests for additional evidence are reasonable, they do mean that anyone submitting the AIF will need to be well-prepared. You’ll need to provide extra information about R&D activities conducted overseas and provide a detailed breakdown of EPW and subcontractor costs, even for activities undertaken in the UK.
Lastly, for companies that qualify for both the Merged and ERIS schemes, you’ll need to decide how to allocate your expenditure between the two before finalising the AIF. This decision could delay submission until after the tax computation has been finalised.
Making the most of HMRC’s Additional Information form.
These changes have added another layer of complexity to the AIF. But when you get your head round them and update your processes, you’ll stand a much better chance of avoiding a compliance check.
Wading through HMRC’s guidance to get a complete picture would be a weighty task! To lighten the load, you can take our course Making the most of HMRC’s Additional Information Form. It provides a concentrated overview of the AIF, and includes an update webinar that covers all the recent changes to the form. The full course will be updated before the end of the year to incorporate the recent changes – if you buy it now, you’ll get immediate access, and all the updates when they’re available.
The course includes practical tips on how you can work with clients to build a strong case for eligibility on the AIF. Once you’ve taken it, you’ll have an effective process for preparing the information you need to include, and you’ll know exactly how to present a strong case to HMRC to support your clients claims.
