Why SIC Codes Matter: Safeguarding Your R&D Tax Relief

Why SIC Codes Matter: Safeguarding Your R&D Tax Relief

When it comes to securing R&D tax relief, accurate classification is more than just a formality – it’s a crucial element that can determine the success of your claim. Standard Industrial Classification (SIC) codes, often seen as administrative details, play a pivotal role in demonstrating your business’s eligibility for R&D incentives.

In this article, Nikkinder Modare, Consultant, R&D Technical, at Ryan, explores why SIC codes matter, how they impact your R&D tax relief application, and what steps you can take to ensure your classification is accurate. By understanding the importance of SIC codes, you can safeguard your claim, avoid costly errors, and maximise the benefits available to your business.

What Is a SIC Code?

SIC codes categorise a company’s primary activities for regulatory, tax, and statistical purposes, giving HMRC and other bodies an understanding of its operations.

How Does HMRC Use This Information?

HMRC carefully monitors for inconsistencies between a company’s SIC code and its R&D tax relief claims. If your SIC code indicates that your business operates in a sector where R&D activities are uncommon, such as “Other Food Services,” the claim may be subject to heightened scrutiny and questioned during an enquiry. Conversely, a business with the SIC code “Other Research and Experimental Development on Natural Sciences and Engineering” may face less initial scepticism.
SIC codes containing terms such as:

  • Other
  • Wholesale
  • Retail
  • Hotels
  • Accommodation
  • Food

are frequently associated with HMRC enquiries as they are generally unrelated to R&D and may incorrectly include routine operational expenses as eligible R&D costs.

How Does HMRC Track Down Your SIC Code After Claim Submission?

To reduce non-compliance, HMRC has introduced a range of measures to better understand and reduce non-compliance:

  • All claims now require an additional information form (AIF) to be submitted. This provides HMRC with further insight into each submission, including the company’s SIC code.
  • SIC code analyses are conducted by HMRC to assess levels of compliance. Current findings show that in 2020 and 2021, the highest levels of compliance for SMEs were seen by professional, scientific, and technical activities followed by manufacturing. The lowest levels of compliance were observed by education and wholesale/retail.
  • The introduction of the claim notification form (CNF), which must be submitted before an R&D claim, requires the SIC code to be specified. This enables HMRC to track the SIC code from the outset of the process. You can find further information about the CNF in this Tax Talk.

How to Update Your SIC Code

  1. File the company’s annual Confirmation Statement with Companies House. Companies can submit multiple statements throughout the year if additional updates are required.
  2. File online or by paper:
    a. Online submission: £34 and takes approximately 15 minutes.
    b. Paper Submission: £62.
  3. Add up to four SIC codes to describe your company’s business activities.
  4. Seek guidance from your accountant to ensure your filing is compliant.

By maintaining accuracy and ensuring your SIC code aligns with your core activities, you safeguard your R&D tax relief claims, stay compliant, and enhance your business’s reputation. Don’t let a simple oversight jeopardise your potential R&D benefits.

At Ryan, our R&D tax relief specialists thoroughly review every aspect of your submission to ensure it meets HMRC’s rigorous standards. Reach out to our team to maximise your R&D incentives with confidence.