Businesses are facing an increased risk of being investigated for non-compliance when making claims for innovation-related reliefs. Those who make erroneous or over-inflated claims risk being excluded from applying for future reliefs and could be subjected to a review of their previous tax records dating back to 20 years.
No-one wants an HMRC enquiry. So, if you are concerned about a claim you’ve already made, or even if you’re just thinking of making a claim, the best defence is to get expert help in the first place.
The Government introduced R&D tax credits in 2000 to encourage UK businesses to enhance their international competitiveness. Under the scheme, companies investing in improvements to a product or service using qualified staff could be eligible for a significant tax break.
With spending on business R&D in the UK hitting £2.9bn for the first time last year, access to this form of tax relief is becoming increasingly relevant to many companies. The UK Government remains committed to promoting R&D, with the Chancellor announcing a further £2.3bn investment for it in last November’s Autumn Budget. Alongside this measure, Mr Hammond also put forward an additional £155m to help HMRC tackle tax avoidance, evasion and non-compliance.
According to Jumpstart’s Business Development Manager Wendy Smith, these additional HMRC resources will lead to a further rise of challenges over R&D relief claims. She said: “Last year, HMRC’s Large Business Directorate significantly increased its scrutiny on R&D tax relief, challenging a quarter of the value of all claims compared with only six per cent in the previous year. 40 per cent of large businesses making claims over the 2016-17 period were investigated and that figure will likely rise.
“We know from our own discussions with HMRC that their claim processing teams are reporting increases in R&D non-compliance, ranging from a lack of clarity in the work done to overcome technological uncertainty, to the mistreatment of grants and incorrect headcount allocations.
“In making claims, judging which projects and activities qualify for R&D tax relief is usually the area where most companies can get it wrong. Given the further Government investment in HMRC, specialist knowledge is more essential than ever to deal with the more in depth scrutiny over the scientific or technological advance against the industry baseline.
Smith continues: “With R&D spending on the rise across the UK, companies face severe consequences for getting wrong when making tax relief claims. They could be initially subjected to a review of their tax records from the previous six years which can be extended to up to 20 years if they believe a business or its agent has submitted deliberately misleading transactions. Companies that have been deemed to have breached the rules not only face having their claim fully retracted but also put at risk their eligibility to claim on future annual reliefs.”
The advice to companies making R&D claims under the tightening HMRC regime is to ensure they are thorough in demonstrating what qualifies as expenditure on innovation and clearly highlighting how this would increase competitiveness.
Wendy Smith said: “While every business will want to claim the maximum amount of R&D tax relief they are entitled to, it is now more important than ever to ensure this is done applying an in depth understanding of how their investment could enhance the baseline of innovation within their particular industry. While some companies have the internal resources to do this, others will not be capable and must therefore consider bringing in professional advisers with an in depth knowledge of their sector.”
About the Author – Wendy Smith
Wendy, a BSc (Hons) graduate in Mathematics and Psychology, has over 15 years of experience working in the financial services industry, managing and developing relationships with lenders, professional services and business owners. Her focus is on building her network to maximise the opportunities for clients, keen to understand the challenges they face with the aim to find an answer.
Wendy joined Jumpstart 2 years ago supporting a leading R&D tax relief specialist, guiding companies through the complexities of submitting claims to HMRC. Based in South Cheshire, Wendy has access to good communication links to assist businesses across the UK.
April 17th, 2018