R&D tax relief claims
Each Autumn statistics around R&D tax relief claims are published and this year’s have just been released. They are quite readable if you are interested and can be found here.
Our thoughts on the stats are as follows……
Year on year the statistics show a rise in the number of R&D claims being made which HMRC suspect is a result of a number of changes which they feel have made the schemes more attractive. These being, the removal of a £10,00 minimum spend requirement, the removal of a payable tax credit cap (which has now been reinstated), increase in the surrender rate for payable tax credits and increases in the rate of relief.
However, these changes were all made quite a few years ago and we would argue that the increasing number of claims being made is a result of a lack of understanding of what constitutes a qualifying claim leading to high numbers of ineligible companies claiming. Most claims go unchecked and so there is no evidence to these companies that the were ineligible and they go on to claim in subsequent years. There are also R&D advisors that will encourage companies to submit claims knowing they are probably ineligible but gambling on the fact that the claim will likely go unchecked.
Comparison with data from the annual Business Enterprise Research and Development (BERD) survey shows a large gap between BERD estimated spend on R&D in the UK and the total claimed as qualifying for R&D tax relief with R&D spend being much higher according to R&D claims.
The two sets of figures are not expected to match exactly as they are not based on exactly the same criteria but the gap between the two sets of data is worryingly high and is increasing:
- 2015 £7.4billion (£21b v £28.4b)
- 2016 £9.7billion (£22.6b v £32.3b)
- 2017 £12.1billion (£23.7b v £35.8b)
Again, we would suggest that this gap could be explained in part by the suspected large number of ineligible claims being submitted.
HMRC may not mention in their stats that there is a problem with ineligible companies claiming R&D tax relief but they are aware of it. Staffing levels increased dramatically at the beginning of the year (one of the reasons that more claims are not checked) and they seem to be paying more attention to those preparing the claims which should hopefully help them identify those advisors doing a poor job in identifying qualifying R&D activity.
It is worth noting that from April 2023 tax reliefs for R&D will become more “UK focused”. The Chancellor has not provided any further information on this, but the implication is that tax relief might only be available where the work is carried out in the UK.
Positive change seems to be coming but it’s going to be a long and slow journey. In the meantime, we can all do our bit to help:
- R&D advisors should ensure they are giving out clear and correct information
- Company owners should ensure that they trust the advisors they are working with and are not swayed by the promise of large cash benefits
- Accountants should ensure that they support their clients by offering good R&D advice (either themselves or with a partner). This advice should not only be given to those clients they suspect are likely to qualify for R&D tax relief but also those clients likely to be targeted by unscrupulous advisors recommending they make a claim regardless of eligibility (who can sound very convincing).
If you would like to discuss anything relating to R&D tax relief, please get in touch with us.