25 March 2021

HMRC nudge businesses to consider ‘statutory definition’ of R&D following compliance push

Services:

Tax Reliefs (including R&D)

Over the course of the last few months, HMRC has made an active bid to clamp down on cases of fraud and improper Research and Development (R&D) tax relief claims. We welcome this ongoing campaign, as it will ultimately help to safeguard the relief for companies that do legitimately qualify. Ensuring that business can continue to benefit from the important cash flow injection the relief offers is vital as they look to further innovate and recover from the impact of the past 12 months. The latest step in this campaign has been a letter which HMRC has issued to claimants over the last few weeks.

What's in the letter?

The letter urges claimants to clarify whether their activity actually qualifies for tax relief, drawing attention to the BEIS definition of R&D which is much stricter than the commercial or engineering definition. HMRC states that whilst they have been carrying out compliance checks, they have come across some claims which don’t hit the BEIS conditions and criteria, and as a result penalties have been issued. And with the National Audit Office reporting that there has been 100 new R&D compliance hires by HMRC in 2020, we can expect to see an increase in the number of enquiries and checks going forward. With this in mind, businesses should take the opportunity fully assess the eligibility criteria, whether you have claimed before or not. If you’re not making an advance in the field of software development, science or technology, then you’re not meeting the qualifying conditions and you could find yourself the subject of an HMRC enquiry. Now is a good a time as any to take a step back and review whether your previous and current claims meet the requirements.

More changes still to come...

Within the past month, a consultation on the scope of qualifying R&D costs has closed, and following the Budget earlier this month the Government opened another consultation on the effectiveness of the RDEC and SME schemes. With potential changes to the relief on the horizon, it’s even more vital to ensure that your claim abides to the guidelines and that you don’t get caught out.

What are the next steps?

Whether you have received a letter from HMRC or not, reviewing your past and current R&D claims is good practice. Your first port of call should be to consult the BEIS guidelines. If on doing so you think your claim is inaccurate, you have a window of opportunity to amend any incorrect submission which you can find out more about here. R&D tax credit rules can be complex, so don’t feel you need to tackle it on your own. Speak to a credible and establish advisor, ideally one who belongs to a professional taxation body and is governed by an industry code of conduct.

Supporting businesses with specialist R&D advice

As always, our team of chartered tax advisors, sector specialists and ex-HMRC inspectors are on hand to support you with any queries or concerns that you might have with your R&D claim. We’ve been working with countless business this year providing free health checks on historical claims. If you’re concerned about the validity of your R&D claim, please feel free to get in touch with our team.

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