Small modern companies throughout the UK are strongly suggested to take additional precautions when deciding on advisors to help with R&D tax reliefs as HMRC continues to crack down on fraudulent and error-strewn claims.
Go straight to the sections you’re taken with or learn on for the complete information.
- What’s R&D tax aid?
- HMRC’s crackdown
- The rising influence of those modifications
- What ought to modern small companies do?
What’s R&D tax aid?
R&D tax credit have been certainly one of HMRC’s most beneficiant enterprise incentives for a few years. Regardless of current reductions to the quantity you may declare, they continue to be a lovely tax incentive. They reward firms that innovate and try to advance information and functionality of their area of science or know-how.
A brand new merged RDEC (Analysis & Growth Expenditure Credit score) tax aid scheme will exchange the SME scheme on April 1, 2024. It’s going to apply to accounting durations starting on or after April 1, 2024. The merged scheme will undertake the prevailing RDEC charge of 20 per cent, which gives web company tax aid of 15 per cent in opposition to qualifying R&D expenditure (£15 for each £100 spent)
For R&D-intensive SMEs, the place 40 per cent of their complete firm expenditure is spent on qualifying R&D prices, offered they’re loss-making earlier than any R&D tax aid, are nonetheless in a position to declare R&D enhanced tax aid at 86 per cent and give up losses at 14.5 per cent (most of £26.97 for each £100 spent).
Aiding with these claims is large enterprise for R&D tax boutiques and accountants; nonetheless, vital points have arisen in recent times.
HMRC’s crackdown
The variety of R&D claims submitted to HMRC has grown exponentially within the final 4 to 5 years, with 90,315 submitted in 2021/22. Many had been deemed to be error-strewn and, in some circumstances, fraudulent.
In 2021 to 2022 value of the scheme was £7.6bn, an 11 per cent enhance from the earlier 12 months and given current financial challenges, notably post-Covid, HMRC was seeking to goal particular areas and R&D tax has grow to be certainly one of their principal compliance targets to sort out.
Ranges of error and fraud reached unacceptable ranges for the Treasury throughout the R&D Tax Reduction schemes after figures revealed in 2020/21 it was 16.7 per cent, costing £1.13bn and up from the earlier estimated stage of three.6 per cent. With out intervention, this is able to solely have grown.
This intervention took the form of practically 300 new HMRC workers deployed to give attention to R&D tax compliance and new coverage measures to counter non-compliance. A devoted R&D Anti-Abuse Unit was additionally arrange in July 2022 to sort out advanced claims.
The most recent figures present that one in 5 R&D tax claims is being challenged by HMRC, and plenty of of those are being refused as a result of HMRC officers carry out a easy web search and, in the event that they discover something comparable, make representations that the know-how already exists.
That is even the case the place an organization holds patents on the know-how. It results in protracted and dear efforts for firms and their advisors defending the declare, while some are even giving up regardless of having real claims.
The rising influence of those modifications
In July 2023, HMRC issued a report on its method to R&D tax reliefs and launched obligatory reporting necessities efficient from August 8, 2023, requiring the ‘Extra Data Kind (AIF)’ to be submitted digitally to HMRC earlier than the tax return was submitted. If the AIF will not be submitted, claims are robotically rejected.
Many small companies don’t realise that accountability for the R&D tax aid declare sits with them, not their accountant or R&D tax advisor who submitted it. Most accountants adhere to strict skilled conduct requirements, however as R&D tax aid boutiques are usually not regulated, only a few will adhere to any skilled constitution.
It was only a matter of time earlier than the rising challenges of R&D tax claimed casualties. In March 2024, a serious supplier of R&D tax aid options ceased buying and selling. They claimed to have secured over £200m in R&D tax incentives for his or her purchasers, boasted a 100 per cent success charge for claims, and represented over 3,000 purchasers.
Following the closure, many of those shopper companies discover themselves in limbo, uncertain whether or not their claims will probably be processed and paid out or if not submitted, having to search out another advisor. Worse nonetheless, the closure of their advisory agency means they might be left to handle their dialog with HMRC by themselves.
What ought to modern small companies do?
Regardless of the current controversies and unfavorable press surrounding the schemes, small enterprise homeowners who conduct qualifying R&D shouldn’t be postpone claiming the aid they’re entitled to.
Small companies ought to guarantee their claims are maximised whereas remaining strong and compliant. To do that, it’s clever to remain updated with the most recent guidelines – even if you’re not submitting the declare your self, being conscious of the most recent laws might help make the method a lot simpler.
There are strict pointers for what qualifies as R&D for tax functions and understanding these will aid you assess rather more precisely whether or not your venture qualifies.
You’ll find the most recent guidelines right here
One other sensible transfer is to keep up detailed documentation on the venture, together with:
- Venture plans
- Technical specs
- Prototype drawings/photographs
- Particulars of any technical uncertainties encountered
In case your accountant doesn’t present an R&D tax service, it’s best to do due diligence when appointing an R&D tax specialist advisor and examine that they’ve a powerful monitor report. This implies guaranteeing they’ve the fitting skilled {qualifications}, conduct claims to a excessive normal, and supply enquiry assist ought to HMRC enquire into the declare.
Darryl Hoy is the technical director of the Analysis & Growth tax reliefs tax crew at Shorts Chartered Accountants.
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