Policy paper

Restricting nominations and assignments for Research and Development (R&D) Relief

Updated 23 November 2023

Who is likely to be affected

These changes will affect companies claiming Research & Development (R&D) tax credit payments under either of the 2 existing schemes or under the new R&D Expenditure Credit scheme, and who wish to use a nominee to receive payment on their behalf. It will also affect the facilitating businesses, accountancy firms and agents.

General description of the measure

This measure, subject to limited exceptions, removes the use of nominations for R&D tax credit payments. This will stop payments being made to third parties, with payments now going directly to claimants.  The government will also legislate to prevent any new assignment (whether equitable or statutory) of R&D tax credits. HMRC will withhold payment until it is able to make payment directly to the claimant company.  The change on nominations will take effect for all claims to payable R&D tax credits made on or after 1 April 2024. The restriction on new assignments will apply in relation to assignments made on or after 22 November 2023.

Policy objective

The government recognises the important role that R&D plays in driving innovation and economic growth as well as the benefits it can bring for society.

This measure will help reduce the unacceptably high levels of non-compliance in the R&D reliefs. It is necessary to protect taxpayers’ money and the integrity of the reliefs, helping to achieve the policy aim of providing relief to companies conducting genuine R&D.

The measure supports the government’s objectives to make tax fairer, and to protect consumers.

Background to the measure

At Autumn Statement 2022 the Chancellor the government would reform the reliefs to ensure taxpayers’ money is spent as effectively as possible.

HMRC published an updated estimate of non-compliance in the R&D reliefs in July. The estimate of non-compliance for 2020-21 is 16.7% (£1.13 billion), which is significantly higher than the previous estimate of 3.6% (£336 million).

The government is clear that this level of non-compliance within the R&D tax reliefs is unacceptable.

Nomination is a service offered by HMRC to Corporation Tax (CT) taxpayers, where repayments of Corporation Tax or payments of payable tax credit are made to a nominated third party — the “nominee”  — (usually an agent) instead of being made directly to the company. While most use of nominations is not associated with fraud, a high proportion of fraudulent or fraud-adjacent claims use nominee bank accounts.

An assignment gives a third party a property right over a payment. Assignments are not currently a significant feature of the R&D landscape; however, the government will legislate to  restrict any new assignment (whether equitable or statutory) of R&D tax credits from 22 November 2023. By restricting R&D payments to third parties, HMRC will reduce losses to the Exchequer relating to non-compliant claims.

Detailed proposal

Operative date

The nominations measure will have effect for all claims to payable R&D tax credits submitted on or after 1 April 2024. The measure preventing new assignments will have effect from 22 November 2023.

Current law

Existing statutory provisions relating to payment of R&D tax credits and RDEC are at sections 1060 and 104S of the Corporation Tax Act 2009 (CTA09) respectively.

Proposed revisions

New legislation banning nominations of R&D tax credit payments will be introduced, subject to limited exceptions.

Separate legislation will also be introduced in Autumn Finance Bill 2023 to prevent new assignments from being entered into on or after 22 November 2023.

Summary of impacts

Exchequer impact (£ million)

2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029
Nil	Nil	Nil	Nil	Nil	Nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

There is expected to be no impact on individuals as this measure only affects businesses.

There is not expected to be an impact on family formation, stability, or breakdown.

Equalities impacts

It is not anticipated that there will be impacts on those in groups sharing protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on an estimated 12,000 businesses by requiring businesses to provide their own bank details with their CT600 in support of R&D claims. One-off costs could include familiarisation with the changes and could also include having to set up a bank account, or — for a small minority of claimants — writing to HMRC to secure continuation of the nominee service for R&D payments. Continuing costs could include providing nominee details separately by letter for customers who wish to continue to use nomination for general Corporation Tax repayments. To support affected businesses, we will provide targeted guidance in the Corporate Intangibles Research and Development manual. This measure is not expected to impact civil society organisations.

Operational impact (£ million) (HMRC or other)

The estimated  operational costs for HMRC are in the region of £800,000 covering both IT and staff costs.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through information collected from claims and claim notifications.

The current R&D reliefs have been subject to periodic econometric evaluation, providing a good baseline for future evaluations. HMRC are collecting more information which enables HMRC to better monitor the relief through, for example, clearer data on what is being claimed.

Consideration will be given to evaluating the policy after sufficient years of monitoring data from claims and claims notifications have been analysed and collected, as part of HMRC’s ongoing programme of tax relief evaluation.

Further advice

If you have any questions about this change, please contact the R&D Policy Team mailbox: [email protected]