HMRC’s Consultation on the Future of R&D Tax Relief – Our Response
Back in March, HMRC launched a consultation that signalled a fundamental review of the R&D tax incentives regime in the UK. The consultation covered a number of important areas of the regime and the outcome is likely to impact all businesses currently making R&D claims. The consultation period ended on 2nd June and YesTax was pleased to have its say on the questions posed by the consultation. We’ve summarised the key aspects of our response.
- We’ve given our support to the consolidation of the two schemes (SME and RDEC) into single regime. It would be our preference to see the RDEC scheme replace the SME scheme, meaning both large and small entities could claim the relief under the same mechanisms. There are certain tax situations under the SME scheme which do not give rise to an immediate benefit for claimant companies. In addition, running a single regime is likely to ease the administrative burden for HMRC.
- YesTax would not support the departure of R&D tax relief from the ordinary CT self-assessment system. The relief should be accessible and keeping it as part of the SA system currently provides accessibility. Complicating the system by moving the claims process to another part of a) the tax system or b) another governmental body would provide unnecessary complication and administrative burden for both claimant companies and HMRC.
- YesTax feels very strongly about making the requirement to provide evidence of a claim a statutory requirement. We are concerned that such a generous tax relief can be claimed without substantiating evidence being required by statute. YesTax is aware of many claimant companies making claims in the CT return which have a significant cost to the exchequer. These claims have no technical or financial support and the figure in the return has been crudely calculated. Invariably, these claims go unchecked when it is clear they contain material errors.
- YesTax believes there is a clear need for additional resource within HMRC to ensure better compliance. It is deeply concerning when stories of massively inflated claims which contain little or no qualifying activity are simply processed by HMRC. R&D tax relief is the UK government’s flagship industrial taxation policy yet it is administered with inadequate resource. We believe additional resource to provide increased compliance checks is the most effective way of stopping the current abuse. This, coupled with a statutory requirement to provide substantiating evidence of a claim, will assist in correcting the current broken system.
- YesTax would welcome an enhanced rate of capital allowances (over and above the current rate provided by RDAs) for capital expenditure directly related to a qualifying R&D project. The eligibility of capital expenditure is common question from many of our clients and they are often perplexed as to why capital expenditure is omitted from the relief. YesTax would welcome a consultation on this matter.
If you have any questions about the R&D tax relief consultation or the responses we’ve put forward, we’d be happy to hear from you at hello@yes.tax
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