Leading adviser urges HMRC to implement R&D tax relief reforms

A leading research and development (R&D) tax relief adviser has welcomed a House of Lords Committee report on reforming the R&D tax relief scheme and has urged HMRC to adopt the proposed recommendations that it sets out.

The report, by the House of Lords-appointed Finance Bill Sub-Committee, highlights concerns raised within UK industry about potential UK government changes to the R&D tax relief scheme and suggests these will not have the desired impact. It calls on HMRC to provide a greater level of certainty to companies claiming for the relief.

Evidence presented to the Sub-Committee highlighted an escalation in abuse of the scheme which included large-scale criminal attacks alongside activities of ‘rogue advisers’ who target small companies encouraging them to make invalid claims. In its most recent accounts, HMRC estimate the amount lost to error and fraud within the R&D tax relief scheme amounted to £469m.

The House of Lords Sub-Committee report’s conclusions and recommendations included:

• Proposed legislative changes will not be effective without improvements to HMRC’s compliance capabilities, including a more targeted approach to identifying suspect claims, increased expertise and more resources.
• That guidance should have been provided sooner as the changes are imminent which allows companies no time to prepare for these.
• Fraud and error could be mitigated before claims are made if HMRC improved its support to businesses, including doing more to increase understanding of the scheme and expanding its existing ‘Advanced Assurance’ process for SME claims.

Douglas Reid, tax director at R&D tax relief specialists ABGI UK commented: “We are delighted that the Committee accepted our response as evidence and referred to it multiple times throughout their report. Its key recommendations – that HMRC should have a more targeted approach to identifying suspect claims, increased expertise and resources – are issues ABGI has been highlighting for years.”

“We echo the Committee’s views in welcoming the extension of qualifying expenditure to include the costs of datasets and of cloud computing. It is encouraging to see the Government and HMRC recognising the evolution of R&D and activities and expenditure which facilitate it. We also welcome the expansion of the definition of R&D to include advances in pure mathematics which we believe simplifies the scheme.

“With the uncertainty currently felt by companies we hope HMRC provide clarity in the near future to allow adequate budgeting to be undertaken by companies. Therefore, we hope that HMRC adopts the Committee’s recommendations.”