In August, the Office of National Statistics (ONS) announced that the UK spent £38.5 billion on research and development activities in 2019, with the business sector making up 67% of this expenditure. This overall 3.4% increase year on year, has resulted in a rise of so-called ‘Tax Advisors’ misinforming and mis-representing clients. Subsequently, consultations between HMRC and the National Audit Office have concluded that future R&D tax relief claims will be coming under increased scrutiny. Read our blog below to ensure you do not get caught out.
What is R&D Tax Relief?
The R&D Tax Scheme was designed by the government in 2010 as an incentive to encourage companies to invest into the research and development of their field, in addition to rewarding innovative thinking from UK SME’s exploring new products and niche markets.
In July, the Government department for Business, Energy & Industrial Strategy (BEIS) released a policy paper detailing further commitment and allocation of funding for innovation, research and development (£14.9bn for 21/22), originally announced in the 2021 Spring Budget.
Qualification for R&D Tax Relief
Whilst it’s a common misconception that R&D tax relief is only relevant and applicable to the manufacturing industry, in fact, there are a plethora of sectors whose research and development projects would qualify.
The project being carried out must look to achieve progression in a field of technology or science, whilst relating to your business’s current trade or a trade intended to start following the conclusion and result of the research and development that is carried out. Small and medium-sized businesses can benefit from an enhanced rate of R&D tax credits in comparison to larger businesses, providing that the business has:
- Fewer than 500 employees
- An annual turnover lower than £100 million
- A balance sheet total not exceeding £86 million
Be aware of unscrupulous tax advisors
The R&D Tax Credits scheme is a brilliant way to claim a tax refund from the Government with many legitimate companies doing all the paperwork for you for a percentage of the refund received. The funds can be reinvested back into your company, helping to improving your business’s balance sheets.
You must ensure that the R&D Tax Claims company that you use are qualified tax advisors ideally referred by your accountant as they will need to work together in order to complete the claim. Furthermore, as well as being able to identify a genuine claim, your R&D Tax Advisor, will need to ensure all paperwork and communications with HMRC are completed professionally and correctly.
Unscrupulous tax advisors will most likely encourage you to make a claim where there is no evidence of qualifying expenditure, or vastly overclaim costs where there might be qualifying activity. In such cases, they may even ask you to sign a “64-8” form, thereby bypassing your accountants and risking large penalties.
The changes from HMRC will have an impact on the claim process for R&D tax credits including preparation of paperwork. In addition, the Professional Conduct in Relation to Taxation (PCRT) has recognised R&D tax credits as a specialist service and have released guidance suggesting more focus on the R&D tax credit advisor that is making the claim on behalf of a company.
Furthermore, companies that will most likely be subject to HMRC enquiries will be as follows:
- Newly incorporated companies.
- Those with little or no employment in the UK.
- Large disparities in year-on-year size of claim.
- Retrospective claims.
- Business sectors where R&D is seen as being unlikely.
- Companies changing their accountants or tax advisors regularly.
Know, Like & Trust
At LWA, we strive to develop long-term relationships with our clients and our network of professionals. We have a select few Tax Advisors that we will appoint if we feel there is a qualifying claim for R&D tax relief. Take a look at one of our recent case studies here.
If you think your business might qualify for R&D Tax Credits, please get in touch with a member of our Tax team in Manchester on 0161 905 1801 or in Warrington on 01925 830 830 – we’re here to help.