Recent reports that HMRC are reassessing past Research and Development (R&D) tax relief claims has rightly raised concerns amongst many SMEs. The UK’s tax authority stated that due to previously underestimated levels of error and fraud, compliance work is required on older claims- with up to £1 billion estimated as being misallocated during the pandemic alone.
What is happening with R&D tax reliefs?
R&D tax reliefs were introduced in 2000 and are designed to encourage innovation through the provision of tax credits. Incentives can be claimed for investment in the research and development of new goods, processes, or services or the improvement of current ones.
However, some companies that received tax breaks in the past have found themselves being told to repay credits by HMRC who are cracking down on claimants they don’t believe are entitled to reliefs.
This has come partly as a result of the National Audit Office spending watchdog recommending compliance work on older R&D tax relief claims. In the recent Spring Budget, the Chancellor announced a commitment to improve the functioning of the R&D relief system with a new expert advisory panel to support HMRC.
How does this affect businesses?
The fact that HMRC has begun to reassess some R&D relief claims is not surprising due to how many claims are not straightforward in the first place. Ultimately, the definition of what constitutes innovation is not clearly defined. Although in practice it remains unlikely that HMRC will reject legitimate claims if they have been administered correctly, there is always the chance that something is rejected. This is concerning as whilst this has always been a possibility in theory, it now feels more likely especially as they step up their compliance efforts.
Businesses should see the recent reports as a sign that caution is required when it comes to R&D tax reliefs. I don’t think we’re anywhere near the point where businesses should shy away from claiming reliefs as they are still a great initiative – however it’s important that claims are administered diligently.
How can Nordens help with R&D tax reliefs?
When it comes to preparing R&D tax relief claims, our team of experts can ensure that you have the best chance of succeeding. Through making sure that claims are diligently checked before being submitted, whilst we can’t be certain, we can be confident that if HMRC do ask questions there shouldn’t be any problems. If HMRC do look further into your claim, the team at Nordens are best placed to provide you with expert advice.
Our wider tax expertise also means that if we don’t necessarily believe that an R&D claim is the best move for your business, we’re able to lay out what we see as being appropriate alternatives.
If you think you could be eligible for R&D, need support submitting a claim, or are currently being investigated by HMRC and would like some advice, please get in touch today.
FAQs
What are R&D tax reliefs and how do they work?
R&D tax reliefs are incentives introduced in 2000 to promote innovation by providing tax credits to companies investing in research and development activities. These activities can include developing new products, processes, or services, or improving existing ones. The reliefs aim to reduce the financial burden on businesses engaged in innovative endeavors.
Why are companies being asked to repay R&D tax credits?
HMRC is reassessing past R&D tax relief claims due to concerns over error and fraud, particularly during the pandemic. The National Audit Office recommended compliance work on older claims, leading HMRC to scrutinize claimants they suspect may not be entitled to the reliefs. Some companies are being asked to repay credits if HMRC deems their claims ineligible.
How does the reassessment of R&D relief claims impact my business?
The reassessment underscores the importance of administering R&D tax relief claims diligently. While legitimate claims are unlikely to be rejected if correctly administered, the lack of a clear definition of innovation can lead to uncertainty. Businesses should approach R&D tax reliefs with caution, ensuring their claims are well-documented and comply with HMRC guidelines to avoid potential repayment demands.
Should I still use R&D tax reliefs despite the reassessment?
Despite the reassessment, R&D tax reliefs remain a valuable initiative for businesses seeking to innovate and invest in research and development. While caution is warranted, companies should not shy away from claiming reliefs if their activities meet the eligibility criteria. Diligent administration and adherence to HMRC guidelines are essential to minimize the risk of repayment demands.
How can I ensure compliance with R&D tax relief claims?
To mitigate the risk of repayment demands, businesses should ensure thorough documentation of their R&D activities and expenditures. Engaging with expert advisors familiar with HMRC guidelines can provide valuable support in navigating the complexities of R&D tax relief claims. Regular review and audit of claims can help identify any potential issues early and ensure compliance with regulatory requirements.
