Reports: R&D tax relief consultation: what could change?
HMRC’s latest consultation on the Research & Development (R&D) Tax Credits, which commenced in March, has now closed.
Keep reading to find out what is being reviewed, and MPAs thoughts on what could – or should – change.
Why is the system being reviewed?
Last year the government consulted on bringing data and cloud computing costs into scope of R&D tax reliefs, which respondents agreed was necessary.
During that consultation, businesses also made it clear that a wider review was needed to ensure the reliefs remain fit-for-purpose if they’re to support the UKs strategy to put innovation at the heart of boosting productivity and economic growth.
What’s being reviewed?
The consultation is looking at:
- How the two R&D initiatives support R&D in the UK
- Whether the schemes need to be amended to remain internationally competitive
- Whether the definition for R&D and the scope of what qualifies remains fit for purpose
- Whether the difference in rates between RDEC and SME remains appropriate
- Considering how the roles of HMRC, agents and businesses can be improved.
- Whether any changes should be made to the types of expenditure eligible for R&D and
- Whether the regime should be more targeted at specific sectors or regions.
Responses were sought from firms undertaking or looking to undertake R&D in the future, business groups and trade associations, accountants and accountancy bodies, and academic institutions.
What isn’t included in the consultation?
- The R&D SME Tax Credit PAYE/NIC cap
This cap means that the payable R&D tax credit an SME can claim is limited to £20,000 plus 300% of its total Pay as you Earn and National Insurance Contributions liability for the relevant period.
- Other government R&D interventions, for example direct R&D investment and research grants
Two schemes vs one
The 2017 Budget promised to simplify the R&D claim process which is often thought over complicated due to the two overlapping regimes: SME and RDEC.
Whilst SME is highly valued by businesses due to the high rates of tax relief it provides, a recent study found it created a smaller amount of investment than the less generous RDEC scheme.
One of the options available is to have a an ‘RDEC for all’; one set of rules with two different rates of relief depending on the size of the company. This would certainly make it easier for businesses to understand the scheme, particularly as they grow.
Another question put forward was whether different rates of relief should apply to different industries/sectors. Whilst this could help grow investment in those areas it is also possible that this could provide an added layer of complexity which is not necessarily needed. Also, what happens if a business does not fit neatly into a particular category?
The MPA view
Evolving with businesses
For us at MPA it is important that the regime recognise the changes in how businesses operate – green technology, the use of cloud computing, data and information technology – all of which are playing an ever increasing role within R&D, and in scientific and technological advances generally.
Extending the categories of qualifying expenditure to include these even further could help boost investment further in these areas.
Clarifying other areas such as Software as a Service (SaaS) and how it fits with R&D would also help.
Currently, there is no requirement for a firm advising on R&D tax credits to be regulated, but one of the key developments in R&D in recent years is the ever-increasing number of fraudulent claims.
In 2019 it is believed that unregulated agents encouraged businesses to overclaim R&D tax credits by over £600million.
Regulation of the service is therefore something which MPA feels strongly about and believes should be implemented to protect both businesses and the Exchequer.
MPA has always offered a specialist service in the R&D tax relief market and is regulated by the ACCA.
Joanne Surley Head of Tax and Accounts, MPA
We welcome these consultations as it allows us to help influence how HMRC work and ensure the tax regime remains appropriate and fit for purpose.
It is important to us that our clients understand what R&D is and what they can claim for, particularly as the onus is on them to ensure the claim they submit is correct.
To help them with this they need to know the advice they are receiving is being provided by appropriately qualified staff with relevant knowledge and experience.
As an ACCA-regulated firm of accountants working alongside chartered tax advisers and industry specialists, we would welcome a move by HMRC which allows only firms who are members of accredited professional bodies to provide this service.