HMRC have released draft guidance for technical consultation on the R&D tax treatment of business expenses paid for by employees and then reimbursed to them by the company. The guidance constitutes a change in their previous view, and should allow taxpayers making claims for R&D tax credits to claim for certain reimbursed expenses, including travel and subsistence costs in relation to R&D activities. In HMRC’s view, items such as home to work travel, training, hire of facilities to discuss findings of research, and repairs to the roof of an R&D facility are non-qualifying on the basis that they are not costs of employing staff, nor do they relate to the employee’s performance of their job. As the legislation refers to ‘amounts paid because of the director’s or employee’s employment’, the categories of expenditure in the new guidance would therefore appear to be a very narrow interpretation.
The underlying principles relating to the claiming of reimbursed expenditure as set out in the new guidance are:
It should be noted that HMRC are expecting companies to check that expenditure meets the principles set out in the guidance and to examine the expenses in detail and to keep supporting records. They do not consider that applying the same percentage of qualifying time spent by a staff member to their reimbursed expense amount will be sufficient in all cases, but they will accept a sampling approach.
The new guidance also confirms that reimbursed expenses can be claimed in an externally provided workers (EPW) arrangement, unconnected and connected, where particular circumstances are met.
HMRC are currently considering the position with regard to the potential for late claims (where the taxpayer did not submit a claim as a result of the previous HMRC view and the time limit has passed) and claims where enquiries have been closed on the basis of the client having withdrawn the claims. A further update is expected at the next meeting of the R&D Consultative Committee on 29 April 2016.
KPMG in the UK’s R&D tax team can advise on suitable methodologies to use to identify the qualifying expenditure or review any claims of this expenditure. To discuss, please contact Carol Johnson or Duncan Minto.