Over the last 12 months, there has been significant focus at HMRC on a company’s SIC Code in determining whether they should open an enquiry into a Research and Development Tax Relief claim.
Are you now wondering what your SIC Code is? Or even asking what is a SIC code?
Well, it stands for Standard Industrial Classification, if you set your company up at Companies House it’s the little bit of information that you provided to Companies House which described what your business was going to do when it was established. If your business has changed over the last 15 or 20 years it may now not reflect your businesses activity.
Imagine you are Jeff Bezos, setting up Amazon for the first time and you were selling books from your garage, you might have used, 47910 – Retail sale via mail order houses or via internet, if he launched Amazon Web Services from the same company he might have used 63110 – Data processing, hosting and related activities , with Amazon Prime now focused on TV production and broadcasting then 59113 – Television programme production activities and 60200 – Television programming and broadcasting activities or 61200 – Wireless telecommunication activities might also be relevant.
So as your business evolves so should your SIC Code, these days 47910 doesn’t adequately reflect the activities of Amazon, so, it wouldn’t be unreasonable to ask them why they are claiming for £1m of R&D Tax Credits for a mail order book service!
It’s a Hot Topic for HMRC
In fact, it has become so hot that HMRC have two significant recent actions that focus on a company’s SIC Code:
Firstly, their new Additional Information Form that every company submitting an R&D Tax Credits claim after 8th August 2023 is going to have to complete, asks for the company’s SIC Code, this means they can risk assess claims based on a SIC Code.
Secondly, they recently wrote to several thousand businesses telling them that whilst it isn’t impossible that the company could be undertaking Research and Development they “would not expect to normally receive valid R&D claims in the following business sectors” they went on to list: Care Homes; Childcare Providers; Personal Trainers; Wholesale Retailers; Hairdressers or Beauticians; Restaurants, pubs, bars and cafes; Real Estate Agents; and Educational institutions, which we would tend to agree with, but they went on to include: The service sectors, Textiles industries; the construction industry; and consultancy firms. Which are a little more surprising as certainly textiles and construction are areas where R&D could be happening, perhaps not with every company in these sectors, but certainly some, and the other two seem rather non-specific and catch all!
So, if you only take one thing away from this blog, it should be go and check your SIC code, if it isn’t completely representative of what your business does today, you can list at least four and maybe more at Companies House, so getting adding the most relevant.