You may have seen that the R&D tax relief schemes have been in the news again, based on new activity and information from HMRC. For any accountants who have clients claiming R&D tax relief, or who offer this service in-house, this is what you need to know.
HMRC publishes a new estimate of error and fraud for R&D tax relief
On 17 July HMRC published its Annual Report and Accounts for 2022-23 which includes new estimates for the level of non-compliance in R&D tax relief.
The new estimate for the overall level of error and fraud for both R&D tax relief schemes for 2020-21 is 16.7% (£1.13bn), which is significantly higher than the previously published estimate of 3.6% (£336m) for 2020-21. The updated estimate for the 2020 to 2021 level of non-compliance in the SME scheme is 24.4% (£1.04 billion), higher than the previously published 5.5%.
We can, and have, called into question the veracity of these new numbers. What level of statistical confidence is HMRC working to? Can a small sample be extrapolated to provide an error and fraud estimate for the whole scheme? What is the nature of the non-compliance if fraud only accounts for a small number of non-compliant claims?
These are all good questions and we will continue to ask them. But one thing is for certain, HMRC’s high stakes scrutiny of R&D tax relief, the increased enquiry rate and aggressive approach is unlikely to dissipate any time soon. It’s challenging for everyone, but many accountants will now decide whether this is a good use of their time and resources.
HMRC publishes new, draft legislation – including a single R&D scheme option
On 18 July, HMRC published draft legislation on the proposed design of a merged scheme for technical consultation. The timing of this was driven by the consideration that this merged scheme could be applied from April 2024. The final decision on whether to merge schemes will be made at a future fiscal event, an Autumn Budget perhaps?
The draft legislation establishes a single R&D relief, delivered as an expenditure credit. However, it will differ from the current RDEC in several respects, most notably that companies will generally be able to claim for payments made as part of an R&D project to subcontractors.
There is also more detail around loss making SMEs that have a high Research and Development intensity.
We will of course keep a close eye on these developments and respond to the technical consultation – it’s our core business and this is where we bring our expertise and experience to bear . However, many accountants may decide that keeping on top of this ever-shifting landscape of rules and regulations has ceased to be viable.
Accountants increasingly considering a third-party option
There are two significant and competing pressures for accountants. Not only is there much greater uncertainly about the scheme rules, but there is also enhanced scrutiny of adherence to those rules. Unsurprisingly, many accountants are having second thoughts about keeping an R&D service in-house. If you haven’t already considered the benefits of an R&D partner, now could be the time.
We have certainly noticed an increase in the number of accountants who are speaking to us having reached that crossroads for themselves. Third party provision offers peace of mind and is a move that allows accountants to support their clients fully, but with confidence that R&D tax credit claims are being filed correctly. Accountants can also be safe in the knowledge that should a compliance enquiry be opened, it will be dealt with promptly, efficiently, and appropriately.
If you want to speak about how GovGrant partners with accountants to support their R&D provision, please don’t hesitate to get in touch.