Obviously the COVID 19 outbreak and how to protect the economy is the Chancellor’s biggest concern, but he did take time to specifically mention the R&D tax relief regime.
While the Chancellor confirmed that there was still a long term commitment to the regime, he also announced a consultation to ensure it remained competitive internationally.
This is where you can find the consultation document
The consultation is wide ranging and is open for comments until 2 June 2021. It could potentially have a significant impact on the future shape and scope of the regime so we would urge R&D businesses to look at it and respond where appropriate.
One thing that is apparent from the consultations is that the Government has significant concerns that the relief may be being exploited by unscrupulous agents, particularly those dealing with SME clients. The relief is claimed through the tax return, and, with many pressures elsewhere, HMRC have only been reviewing a small number of claims in any detail. This has meant that an increasing number of ineligible claims are being made and accepted, which has itself encouraged more under-qualified advisers into the field who have promoted more bad claims. R&D relief has become a large cost to the Government (over £5bn per annum for the latest year for which figures are available -1918/19). Clearly the Government want to ensure this money is being spent effectively
Reliefs are now being claimed on more expenditure than the total amount of R&D believed to be taking place in the UK, even though not all of expenditure on R&D even falls into qualifying categories for the relief. This has been noted by the Treasury who have told HMRC they need to significantly improve their compliance efforts, to discourage poor quality advisers from submitting ineligible claims.
Against this background the consultation asks if the regime should continue to be administered as part of the Corporation Tax self assessment system, and whether more justifications should be required from claimants. It also envisages further focussing of enquiry work on claimants that provide less information and justification for their claims
These concerns clearly suggest that increased scrutiny and challenge of R&D relief claims will be the norm, and this must be an argument for making sure you use a good adviser with appropriately experienced technologists and finance professionals to ensure your claim meets the scheme requirements.
The consultation covers many themes as well as compliance. Some of the most significant are listed below, demonstrating how wide ranging the consultation is:
- How can the overall claim process be improved to make sure that better quality claims are being made – should for example this be dealt with outside the normal tax framework; should more information be required for each claim, and should nearly every claim be individually scrutinised?
- Should a senior figure at each claimant be made personally responsible for the reliability of each claim, (presumably with sanctions envisaged for incorrect claims)?
- What is claimants’ experience of agents and their fee structures? How can the expertise of agents’ work be improved?
- Should the R&D relief be differentially targeted at different sectors e.g. to encourage R&D into “green”industries?
- Should the reliefs for capital expenditure (RDAs) be revisited?
- Is the current R&D definition fit for purpose – should it be extended?
- Should the SME scheme be structured in the same way as the R&D expenditure credit for larger companies ?
- How can the incentive effect of the SME relief be improved so more “additional ” R&D is carried out?
- How much does the rate of R&D relief in the UK affect the decisions as to where to carry out R&D ? Is the balance between the large and small company rates correct?
- How much of the claimants’ R&D is carried on outside the UK, and should the scheme incentivise work actually carries out in the UK ? (Post Brexit the UK is no longer obliged to be neutral as to where the actual R&D activity takes place )
How can Infintec help?
Infintec welcomes this review – it is critical that the scheme maintains its integrity, relevance and competitiveness. R&D tax relief is a vital element of innovation funding, relied on by many businesses.
The big difference between R&D tax relief and other forms of funding is that the former is based on qualifying work already undertaken, whilst the latter is based on convincing a lender that the funding will be put to good use. This is where we come in – helping to make you fundable and grow your business.
Why not give us a call on 01184 032994