R&D Tax Relief: HMRC Try to Tackle Abuse

9th April 2019

 

Many companies, not just those in the tech industry, will have benefitted from the generosity of R&D tax relief. Eligible R&D expenditure can be inflated by a notional 230% uplift, and a refund of tax claimed on tax that was never paid in the first place. Perhaps not unsurprisingly, HMRC have identified abuses of these super-generous rules and a consultation paper has now been issued setting out how they intend to tackle this:

 

 

As you will see, the main proposed changes are:

 

  1. Introducing a cap on the amount of repayable tax credit that a qualifying loss-making business can receive through the relief in any one accounting period (the cap will be three times the company’s total PAYE and NICs liability for that year and will be implemented from April 2020). The government is aware that applying a cap on the amount of repayable tax credit a company could claim will add some administrative burden for businesses. It is therefore considering applying the cap only to repayable tax credit claims above a certain ‘threshold’, so that the smallest claims would be unaffected, keeping things as simple as possible.
  2. Where potentially surrenderable losses cannot be surrendered for a repayable tax credit because of the cap, those losses, to the extent that they are carried forward, would still be potentially surrenderable. These ‘carried forward (potentially surrenderable) losses’ can be used as normal in later accounting periods, but companies would also have the option to surrender them in exchange for repayable tax credit for a limited period of time – e.g. for two years – if there is sufficient PAYE and NICs liability after any claim which relates to the current year.

 

The cost of the R&D Tax Relief scheme is estimated to be around £1.8bn a year. HMRC has identified (and prevented) fraudulent attempts to claim the SME scheme repayable tax credit totaling over £300m.  In these cases, companies were set up to claim the cash available through the repayable tax credit even though they had no R&D activity.

Responses to the consultation process are invited by 24 May 2019.

Other items in Blogs
Nick Edgley
21st October 2021 Holiday lettings – declare to HMRC

If you own a UK holiday let are you declaring your rental profits to HMRC? If not time may be running out to make a voluntary disclosure of past profits.   HMRC has the power to request information, or documents, from third parties such as holiday booking sites; as well as being able to search…

Keri John
20th October 2021 Xero – Assigning Bills to Customers

You can now assign bills to customers in Xero!   This makes it easier to allocate expenses occurred during a job to the correct customer.   Perfect for Estate Agents, event planners and more.   When creating a bill to pay onto Xero there is an option to ‘assign the bill to a customer’. You…

Jake Day
20th October 2021 Minimising Your IHT Exposure

As Benjamin Franklin once said; the only two certainties in life are death and taxes. Although it’s a sombre subject, it is important to put in place the right planning so that when we are hit by one, we can avoid the other. We want to ensure we are able to leave as much of…

Paul Jefferson
19th October 2021 VAT Registration

A business must compulsorily register for VAT if taxable 12 month turnover exceeds £85,000. They can voluntarily register for VAT as soon as they start trading, providing they expect to make taxable supplies in the future.   Businesses that provide to other businesses may choose to register for VAT voluntarily before the registration threshold is…

Sharon Mace
13th October 2021 VAT DIY Scheme: HMRC update list of allowable expenses

There has been some controversy on claims made on DIY building schemes. HMRC have updated their guidance on goods and services that can be claimed under the VAT DIY Housebuilders’ Scheme.   The list is extensive and gives an ABC of items that are allowed, from Agas to woodworm treatment – but there’s a catch,…

Ben Kilby
13th October 2021 Look out! Sage 50cloud Accounts v28 update

From Monday 18th October 2021, clients using Sage50 Accounts will be sent a software update for version 28.   Some of the new features of the software:   New – customisable business dashboard showing you key business information, without the need to run numerous reports New – access the Sage 50cloud Accounts Help Centre directly…