Businesses are being asked to pay back their R&D tax relief. What does this mean for you?

R&D tax relief broke the headlines again this week, with HMRC asking claimants to pay back the relief they received.

Sara Kelly discusses what this means for claimants on the ground.

Earlier this week the BBC shed light on HMRC’s latest drill down into R&D tax relief. Fraudulent claims have risen in recent years, with HMRC now digging into older submissions. According to HMRC, some claimants have incorrectly submitted a claim and are being told to repay the relief.

Business groups and industry leaders are taking to social media and the press to call out HMRC’s approach. But while the noise continues to spread, what does this all mean for claimants on the ground – specifically SMEs?

Why are cases of fraud and improper R&D claims so rife?

Let’s start with some context. The reason that fraudulent cases have been rising is threefold.

• R&D tax relief in the UK is still very attractive. The rates of R&D tax relief are high. This is great for genuine claimants, who are accessing support for innovating in their respective industries. Yet, this has also meant that R&D is an attractive scheme to abuse. And we’ve seen bogus and improper claims dominate industry headlines over the last few years.

• The tax landscape is unregulated. Any and every one can give out tax advice – there are no barriers to enter the industry. This has resulted in a rise in so-called ‘cowboys’ who are giving out questionable advice. If an HMRC enquiry results from this, the claimant is the one left on the line, not the advisor. Thankfully, HMRC have now added a new step to the submission process. Claimants now have to disclose their professional advisors, which puts more onus on the advice.

• The definition of ‘innovation’ is blurry. With blurred lines and subjectivity, there have been opportunities to argue over which activities qualify in times gone by. In October, HMRC released guidelines to address the issue, helping businesses to understand what they mean by innovation. You can access this here.

So, to safeguard the relief as a whole, it has been imperative for HMRC to take action. Whether their most recent course of action is right is another debate.

What does HMRC’s stance mean for claimants?

There's no two ways about it. For smaller businesses, handing the relief back (which can be tens of thousands of pounds) can be crippling.

Submitting a claim requires an investment of time and resources. So, the impact of having to repay the relief received can be colossal. Especially in today’s economic climate.

It would be understandable for claimants to forgo the relief as a result of these headlines. Not least if you’re an SME or start-up already dealing with the intricacies of managing and growing a business.

These smaller businesses are the absolute lifeblood of our economy. So, while HMRC aims to safeguard the relief, making it feel inaccessible could be detrimental to innovation overall.

That said, our advice would be not to panic and not to be put off. With the right information and advice, R&D can still be invaluable for genuine claimants.

So, what should claimants be doing?

It might seem obvious, but make sure you’re diligent and evidencing everything. From your project details and methodology to your time records and financial records.

Now more than ever, we’d recommend consulting a qualified, R&D tax advisor before claiming.

What should I do if I receive an HMRC enquiry?

Receiving an enquiry letter is daunting, so make sure you don’t go it alone.

If an advisor has assisted you with your claim, speak to them directly as your first port of call. They should be able to help manage the enquiry process on your behalf.

If you have submitted the claim yourself, or if post-submission support isn’t part of your advisor's fee structure, reach out to our team. We will be able to advise you on your best course of action.

Supporting you with your R&D claim

In an ideal world, we would have a predictable and supportive environment which allows innovative businesses to flourish through the help of tax relief.

But while fraudulent claims continue to taint the landscape and HMRC continues to clamp down on relief, it’s more important than ever to consult a qualified R&D tax relief expert.

Our team is comprised of ex-HMRC advisors, chartered tax advisors, and sector specialists. They are on hand to help you if you have any questions, queries or concerns about any of the topics we’ve raised above.

Please feel free to get in touch, we would be happy to catch up with you on your current and future claims.