Research and development tax relief – too good to be true?

In an economy which has seen a significant drag in productivity, the importance of innovation has never been more important for UK companies.

This is reflected in generous research and development (R&D) tax reliefs available to businesses which are prepared to invest in R&D.

And whilst the term ‘R&D’ conjures up for many people images of scientists in white coats working away in laboratories, in fact the term is wide-ranging, and can apply to a variety of activities, whether relating to new products, processes, services or systems from developing new customer service software to coming up with innovative new ways to manufacture goods. 

Reliefs on offer include a 230% deduction for the costs of staff dedicated to the R&D activity, further reductions against other R&D costs, and even a tax credit which can in effect give the company a cash repayment of up to £33 for every £100 spent on R&D. 

However, such generous reliefs have inevitably attracted some sharp operators into the tax advice market – and as a result, HMRC is cracking down on claims it views as unjustified.  Those on the receiving end of unqualified or simply dodgy advice are increasingly at risk of facing an HMRC enquiry, which at the very least means considerable hassle and time wasted, but also lengthy enquiries and penalties, and in the most serious of cases, prosecutions for fraud.

The tax advisory profession is a remarkably broad sector, with a huge number of interesting and complex niches.  R&D tax relief is one such niche, offering in-depth exposure to the financial and technical issues which companies face. 

Unfortunately, there is real concern about the way that some advisors in this market are operating, not just about the quality (or otherwise) of the claims being made, but also of the business practices being adopted. 

Too many businesses have received a cold call or unsolicited email from a so-called ‘R&D Tax Specialist’, often claiming to be ‘approved by HMRC’ (no such approval exists), promising to deliver large sums of HMRC cash – in return, of course, for a sizeable slice of the action. 

It is these claims, often incorrect or potentially fraudulent, which frequently result in HMRC enquiries – and it is the claimant company, not the adviser (who by this stage has generally disappeared over the horizon with their fee), who carries the can. 

It’s difficult to argue with HMRC cracking down on unjustified claims, and devoting resources to instigating enquiries where it feels a claim has been made incorrectly.  

So the lesson is clear: don’t rely on unknown, unqualified advice, but ensure you have consulted a qualified, chartered tax adviser or accountant.  That way you can be more confident that HMRC will be accept your claim and provide the relief.