18 September 2023
Would you like to receive a tax repayment from HMRC through an R&D Tax Relief Claim? Changes are taking place!
In recent times, the world of Research and Development (R&D) tax relief has witnessed a significant transformation, causing ripples of concern and discussion throughout the industry. The landscape has shifted, and as your trusted advisors, we want to ensure you are well-informed about these changes and equipped to navigate them successfully
HMRC’s Evolving Compliance Approach
Over the past 18 months, HMRC has taken a tougher stance on R&D tax relief claims, imposing stiff penalties as part of a crackdown on perceived boundary-pushing practices. This shift has sparked national debate and raised concerns among R&D specialists regarding the implications for both past and future claims.
One notable change is HMRC’s shift towards written communication, reducing open verbal interactions. It’s increasingly common for them to amend Corporate Tax (CT) returns without initiating a compliance check. This change in approach has left many in the industry feeling the effects of reduced communication and collaboration with HMRC.
Distinguishing Ethical Advisers
Amidst these changes, it is essential to remember that not all R&D advisers are the same. Some are ethical specialists who abide by the rules, while others prioritise profits over ethics. HMRC’s new approach aims to differentiate between the two, affecting everyone in the process.
The good news is that there are proactive steps you can take to reduce the risk of a compliance check:
Ensure Your Client Understands HMRC’s R&D Definition
Understand HMRC’s definition of R&D for tax purposes. They must meet two conditions: advancing technology and overcoming technological uncertainty. Involving a “Competent Professional” is crucial to determine advancements and uncertainties. If they don’t qualify, explaining why can prevent costly R&D enquiries.
Steer Clients Away from High-Risk Advisors
Assess third-party R&D advisors, examine their qualifications, experience, tax agent information, and references from claimants they’ve worked with. Due diligence is essential when choosing R&D advisors, just as it is with any other service provider.
Impact of HMRC’s Changes
Despite the controversy surrounding HMRC’s changes, there are promising signs ahead. The increased administrative burden will deter fraudulent practices, leaving conscientious and ethical experts in the R&D field.
What can trigger a HMRC enquiry?
- Lengthy Reports – HMRC is imposing a 30-minute time limit on its risk assessments. If a report exceeds this timeframe, it might be categorised as medium risk simply because it is too long.
- Overuse of Exaggeration or Complex Language
- Incomplete Structure – Incomplete reports fail to provide HMRC with sufficient information to assess whether R&D activities were conducted.
- Evident Errors – Certain errors raise doubts about the advisor’s credibility and grasp of the guidelines.
- Industry Classification and Online Presence – If HMRC examines the company’s Standard Industrial Classification (SIC) code and finds terms like ‘Wholesaler’ or ‘Reseller,’ R&D is unlikely.
- Random Selection – HMRC has confirmed that they are presently selecting claims randomly for scrutiny to assess the overall level of fraud and errors in the scheme.
At Morrissey Chartered Accountants, we remain committed to providing you with the latest insights and expert guidance to navigate the evolving R&D tax relief landscape.
If you require further information, please do not hesitate to contact our team at Morrissey Chartered Accountants.