UK companies are facing a heightened risk of non-compliance with new regulations concerning the submission of tax relief claims for research and development (R&D).
Since the implementation of new documentation requirements on 8 August 2023, nearly half of the claims have been declared invalid by HMRC.
Companies that have not yet adhered to the new forms will soon receive notices from HMRC, notifying them that their R&D claims will be invalidated unless they revise their submissions.
In a recent communication to agents, the tax authority revealed that almost half of all claims received between 8 August and 3 September lacked the mandatory additional information form (AIF).
This AIF is necessary for claims related to both SME R&D tax relief and the R&D expenditure credit (RDEC).
Who is impacted?
While the exact number of companies with rejected claims is unknown, it could potentially involve thousands.
In the 2020-21 tax year alone, there were 89,300 R&D claims filed in the UK, with a 7% increase from the previous year, largely attributed to SMEs.
The changes in administrative regulations are aimed at identifying and rectifying erroneous and fraudulent R&D claims, particularly considering the increased scrutiny by HMRC into R&D tax relief claims.
Why the need for change?
To tackle the rise in unregulated R&D tax consultancies and the financial burden of R&D tax credits following Brexit, HMRC has stepped up its investigations into R&D tax relief errors and fraud.
The estimated level of error and fraud for both R&D tax relief schemes across various sectors in 2020-21 amounted to £1.13 billion, equivalent to 16.7% of claims, significantly higher than HMRC’s previous estimate of 3.6%.
According to the Office for National Statistics (ONS), the latest data shows that R&D expenditure conducted in the UK reached £61.8 billion in 2020, a £2.1 billion increase from 2019.
The business sector accounted for the largest portion of R&D expenditure at £44 billion, followed by the higher education sector at £13.9 billion.
How Williamson & Croft can help
Opting for Williamson & Croft ensures that you have a partner with a deep understanding of the forthcoming rule changes, setting us apart in the field of tax advisory.
Here’s why entrusting your R&D claim to us is a wise decision:
We possess profound expertise: Our experts have delved into the intricate details of the proposed R&D tax relief reforms. This in-depth knowledge allows us to skillfully guide you through the evolving landscape and optimise your claim within the new framework.
Custom-tailored strategies: We acknowledge that no two businesses are identical. Our approach is highly personalised, meaning we will collaborate closely with you to create a tax relief strategy that perfectly aligns with your unique R&D activities and business objectives.
Stringent compliance assurance: The changing dynamics of R&D tax relief necessitate meticulous compliance. Our firm is dedicated to ensuring that your claim not only leverages available incentives but also remains fully compliant with the incoming regulations.
Choosing Williamson & Croft as your partner ensures you navigate the evolving R&D tax relief landscape with confidence and assurance.
Contact us today to get started.