R&D claims hang in balance amid latest HMRC guidance
Following an HMRC error, uncertainty hangs over the fate of R&D tax claims made by companies in the UK with certain period ends in 2024, it emerged today.
Despite official HMRC guidance being updated, eligible businesses may yet be locked out of benefits totalling, potentially, millions of pounds in tax credits, which they could have used to help offset the cost of research and development.
“The claims system for companies which innovate for competitive advantage is far too complicated,” said Heather Williams, a tax partner at Azets, the top 10 accountancy and business advisory.
Based on the South Coast, with specialist experience in R&D, she added: “Companies should not be made to walk on fire for making genuine R&D claims.
“It costs a lot of money to innovate – and new products, services or processes that are brought to market because of R&D can successfully generate taxes for the public, hence the rationale for the schemes.”
By the government’s own figures, tax reliefs can be between £15 to £27 for every £100 spent on R&D; there are tens of thousands of businesses that claim R&D tax relief every single year.
In a guidance update, professional advisors have been told by HMRC that there is a “potential opportunity” to file for claims with a March, April or May 2024 period end, where pre-notification deadlines were missed.
That same update, under the heading Claim Notification Form, also referred to “HMRC’s guidance error – CIRD183000” and “errors in forms”.
The bar on compliance, with the introduction of pre-notification documentation and deadlines, was significantly raised by HMRC two years ago to help combat fraud and error which was estimated to be as high as £1.13bn for 2020-21, nearly 17% of total claim value at that time.
“Whilst these changes were well-intentioned, the pendulum has swung completely in the opposite direction, causing widespread uncertainty and confusion in businesses and for their advisors,” said Heather.
“This latest no-yes guidance by HMRC, caveated with the vague phrase ‘potential opportunity’, means none of us are any wiser – are the rejected claims now eligible for companies with a March, April or May 2024 period end or not?
“If not, it potentially means that, possibly, millions of pounds cannot be claimed or offset against corporation tax, with the negative impact it will have on those businesses in the long term because they cannot recoup that outlay.
“Innovation is the lifeblood of many a UK business – knowing there are tax credits to come to offset R&D investment can make a difference between a project going ahead or not.”
Azets warned two years ago that the then new requirements for companies to pre-register an intention to make a claim, with additional strict criteria to meet, could have a detrimental impact for companies.
The sums of money involved could be significant – the Office for National Statistics reported that expenditure on R&D was £70.7bn in 2022, an increase of £4.4bn since 2021 and £12.4 billion since 2018.
An estimated £7.5bn was claimed in R&D tax relief support for 2022-23, based on figures provided by the UK government, with 65,690 R&D tax claims having been made for that period.
Similar to previous years, claims are concentrated in the following three sectors – information and communication, manufacturing, and professional, scientific and technical (70% of total amount).
Claims ranged from <£5,000 to £2m+, with 10,000-plus claims generating benefits of between £50,000 and £100,000 each.
According to Oxford Economics, an independent economic advisory firm, each £1 of public R&D stimulates between £0.41 and £0.74 of private R&D within the same year.
In the long run, the same £1 of public R&D eventually stimulates between £1.96 and £2.34 of private R&D, inclusive of the impact in the first year.