The UK Government introduced R&D Tax Relief more 20 years ago to incentivise businesses to invest in innovative activities, since when over 300,000 claims have been made and over £27billion of tax relief claimed. We’ve seen year-on-year increases in both the number of claims being made and the amounts being claimed, which is good news as more companies take advantage of this valuable source of Government funding. HMRC have stated ‘Investment in Research and Development is vital for increasing productivity. R&D tax reliefs support businesses investing and are a core part of the Government’s support for innovation. A study by HMRC found that for every £1 of tax forgone, between £1.53 and £2.35 of additional R&D is stimulated’.
The benefits of the R&D scheme are apparent across many industries; however, its’ increasing popularity has seen a rise in incorrect and poorly constructed R&D claims and has led to HMRC being forced to place more emphasis upon detecting fraudulent R&D claims to ensure companies who are claiming relief are doing so in accordance with the legislative criteria. Over £500 million of fraudulent claims have been identified and prevented by HMRC, including a number of structures where expenditure incurred outside of the UK had been re-routed through a UK entity which, in most cases, had no employment activity whatsoever and had been set up solely to access R&D Tax Credits. A consultation on preventing abuse of the R&D Tax Credits for SME’s was set up by HMRC last year and a number of measures have since been put into place to ensure the R&D Tax Credits are being claimed by companies who are entitled to make such claims. These include;
- the proposed re-introduction of the PAYE and NIC cap, previously removed back in 2012, is designed to deter fraudulent claims by companies who have little or no employment activity in the UK. This may, of course, affect companies who are making genuine claims – which the Government wants to prevent as much as possible – and is to be set at 3x the company’s total PAYE and NIC liability in the claim period.
- the restructuring of the processing of R&D claims by moving this to HMRC Business Tax and Customs (BT&C), whereby a larger volume of claims can now be handled and more staff are on hand to review claims for compliance. Innovation Tax expect there will now be more scrutiny on claims which are not robustly presented to the revenue. We have noticed quicker processing of claims since the restructuring and welcome the changes made.
- talks over the creation of a single, ‘beefed-up’ Anti-Tax Evasion unit within HMRC to cover all taxation issues, from individual errors to deliberate non-compliance, along with new anti-avoidance measures. The profession will welcome these measures as they emphasise the importance and the role of the advisor.
It has also been suggested that the Government should implement regulations for those who advise companies on R&D Tax Relief. Despite there being many good advisors, there are a minority who mislead or advise incorrectly or who don’t provide reasonable backing information to support a claim. At Innovation Tax, we have encountered cases such as these and have subsequently been engaged by the client’s accountant to assist with their claim, restoring both their confidence and trust.
In summary, we would urge companies wishing to make an R&D claim to consult with a specialist who has a proven track record of making successful claims by using experienced industry and taxation professionals with a thorough understanding of the legislative requirements.
At Innovation Tax, all our taxation professionals are qualified accountants with corporation tax experience in both practice and industry to help ensure your R&D claim is both maximised and fully compliant.