As anyone familiar with R&D tax relief claims will know, one of the main items of qualifying expenditure included in most claims will be the company’s relevant Staff Costs. Since the relief was first introduced in FA2000 it has been accepted that reimbursed expenses form part of Staff Costs. At least, that is my experience and I’ve not met anyone who disagreed with that. Until recently, that is.
HMRC is now arguing that reimbursed expenses – that is, expenses incurred by an employee or director in their own name and then reimbursed by the employer – were never intended to form part of Staff Costs. Such expenses cannot be included in the R&D claim (so HMRC’s argument continues) unless the underlying expense itself falls into one of the eligible cost categories.
This is a matter that has been under discussion (more by way of updating on HMRC’s position rather than active technical debate) with the R&D Consultative Committee since October 2013. I think it is fair to report that (amongst those who expressed an opinion) there was universal disagreement with HMRC’s position. In January 2015 HMRC issued a “clarification” of its position, saying that this note would be used as the basis of an update to the Corporate Intangibles R&D Manual.
To be fair, this is unlikely to be a material issue in many (if any) R&D claims. The concern is more with the way HMRC is going about trying to change the meaning of the law without actually changing the law. CIOT has written to HMRC setting out why we believe HMRC’s analysis is wrong and objecting to this approach. That letter, together with HMRC’s note, can be read here.
At the time of writing this post, I am not aware of a response from HMRC.