Blockchain technology is an area in which there is constant innovation and improvement in the baseline technology, and the availability of R&D tax relief should be strongly considered.
Blockchain technology has disrupted the way data is controlled. Today, companies large and small are utilising and investing significantly in the development of their blockchain technology. But blockchain technology is an ever-evolving area requiring constant investment: from the development of new software platforms that utilise blockchain-based technologies to the re-engineering of existing software to make use of, and integrate with cutting-edge blockchain solutions. As a result, it is an area which can fall squarely within the criteria for R&D tax relief. However, in order to claim R&D tax relief, companies will need to be able to convey the innovation, development and technological advances to HMRC.
Not all developments may qualify
Currently many companies are developing apps or services to integrate with their technology. In some instances, they will be using publicly available baseline knowledge and technology. Because the company is not developing its own blockchains, but is using an existing framework, it may find that R&D tax relief is not available, as there may well not be a demonstrable advance in science, or technology when solely building upon the original baseline technology.
What areas qualify for relief?
Qualifying R&D expenditure is more likely to be available where a company is developing its own blockchain, with entirely new technical stacks, or extending a blockchain. Companies researching alternative routes to enable a blockchain to function for their purposes, may therefore be able to claim R&D tax relief.
Additionally, efforts to solve some of the headline concerns surrounding blockchains will usually qualify as R&D expenditure, including:
- Security;
- Environmental costs of mining;
- GDPR compliance; and
- Data governance.
Qualifying R&D expenditure changes
A hot topic: the environmental impact of data mining, is an area under scrutiny, particularly the significant energy required for data mining. Should a company be researching and developing methods to use blockchain in a more efficient, environmentally conscious, way then there is every chance that the work could qualify for R&D tax relief.
There have been substantial changes to the scope of expenditure that may be included in an R&D tax relief claim for both large companies and SMEs for accounting periods beginning on or after 1 April, 2023. These include:
- Data licences;
- Cloud computing; and
- Pure mathematics.
Cloud computing costs are often substantial when developing blockchain technology and the inclusion of them as qualifying R&D expenditure will be welcomed. As will be the inclusion of pure mathematics, as some blockchain applications and projects are driven by underlying mathematical advances.
Additionally further changes to the R&D regime have been made for accounting periods beginning on or after 1 April 2024. Notable changes include the introduction of the “R&D Merged Scheme” and restrictions on the eligibility of subcontracted work and externally provided workers.
First-time claimants
If your company is making a R&D tax relief claim for the first time, you will need to notify HMRC in advance about your claim using the new claim Notification Form. The form is required for accounting periods beginning on or after 1 April 2023.
You must notify HMRC if:
- you’re claiming for the first time
- your last claim was made more than 3 years before the last date of the ‘claim notification period’
To complete and submit the form you must be either:
- a representative of the company
- an agent acting on behalf of the company
Working out your claim notification period
Your claim notification period:
- starts on the first day of the ‘period of account’ — this is the first date of your notification period
- ends 6 months after the end of the ‘period of account’ — this is the last date of your claim notification period
If you’re claiming for a ‘period of account’ that’s 12 months or less, your ‘accounting period’ will usually cover the same time as your ‘period of account’.
If you’re claiming for a ‘period of account’ that’s more than 12 months, it will include 2 or more ‘accounting periods’. The claim notification period is the same for all accounting periods.
If you’ve claimed R&D tax relief previously
If you’ve claimed R&D tax relief within three years of the last date of your claim notification period you do not need to send a claim notification form, unless any of the following exceptions apply:
- HMRC rejected your R&D tax relief claim by removing it from your Company Tax Return
- you claimed R&D tax relief for an accounting period beginning before 1 April 2023 by amending your tax return and the amendment was received on or after 1 April 2023
If you made a claim more than 3 years before the last date of your claim notification period or if any of the exceptions apply, you’ll need to either:
- submit the claim notification form by the ‘last date of the claim notification period’
- send the R&D tax relief claim on your Company Tax Return or as an amendment to the return, so that it’s received by the ‘last date of the claim notification period’
Existing claimants: The additional information form
You will need to submit an additional information form to HMRC to support all your claims for R&D tax relief or expenditure credit. This form needs to be submitted before you submit your company’s Corporation Tax Return. Failure to do so may result in your claim for R&D tax relief being removed from you Company Tax Return.
However, we at PKF are well prepared for the additional reporting requirements, and all the information required for the additional information form will be captured during our work should we prepare your R&D claim.
