Innovation is key to the future success of the UK economy, and we have a lot of huge talent here doing world-class research.
Like most first-world countries, the UK offers generous tax breaks to those conducting R&D.
It is even possible to obtain a tax refund for amounts spent on R & D, not just a tax bill reduction. You may surrender the losses at a lower rate to access a genuine tax credit, not just a future deduction.
Unfortunately, the authorities in the UK have not done a great job of ensuring that the claims made comply with the regulations. Inevitably, this lack of focus has led to many claims being made that did not comply, and as a result, the tax cost has been very high.
That changed last August when new claims for R&D credits had to provide additional information to support their validity. Five detailed questions need to be answered in a separate form before the corporation tax return is submitted. This will achieve two things: it will discourage companies with weak claims and smaller claims because the professional fees will be higher, and a cost-benefit analysis may conclude that it’s not worth it.
At the same time, HMRC is investigating earlier claims to check if they comply. We are now seeing HMRC denying claims where the pre-approval was not submitted.
So, the conclusion is that HMRC will no longer allow the claims to be made with scrutiny. Anyone making a claim now should ensure that they have a project which complies with the rules, which, unfortunately, will mean more work for the tax advisor and, inevitably, additional professional fees. It also makes sense to use a tax advisor with the appropriate skills to deal with the claim and any questions from HMRC.
