R&D tax expert calls for regulation

One of the region’s leading research and development (R&D) tax experts has welcomed new government measures to prevent abuse and fraud in the in the R&D tax credit scheme but believes more can be done to tackle the root cause of the problem. 

David Kitson, tax partner at Azets in the North West, the UK Top 10 accounting firm, has called for regulation to stop mis-selling of the scheme by rogue advisors.

The call comes following the Chancellor’s Autumn Statement, in which he confirmed reform of the reliefs “to ensure taxpayers’ money is spent as effectively as possible”.

Jeremy Hunt announced a cut to the deduction rate for the SME scheme to 86 per cent and the credit rate to 10 per cent but increased the rate of the separate R&D expenditure credit from 13 per cent to 20 per cent.

David Kitson said: “The overall picture is a significant re-balancing of the tax reliefs available for companies eligible for R&D intensive companies. The impact of these changes will be a reduction of more than 30 per cent in the tax benefit to companies undertaking R&D from April 2023.

“However, on top of the increase of Corporation Tax from 19 per cent to 25 per cent next April, SMEs undertaking innovative work will be hugely disappointed in this announcement, with a big reduction in the amounts available for re-investment in their businesses.

“This will do nothing to stimulate growth in the SME sector of the economy. The R&D expenditure credit (RDEC) and SME schemes will now have broadly the same tax value of around 16 per cent of qualifying cost – though most businesses claiming are SMEs, which makes them less competitive.

“We applaud the proactive steps being taken by government to simplify R&D tax reliefs across all countries and prevent abuse and fraud in the tax credit scheme. However, while making the scheme more difficult to claim under, these do nothing to address the real reason for the abuse, which is the unregulated mis-selling of the scheme by a handful of advisors in the market.”

David Kitson has urged business owners to seek specialist advice from reputable advisors to ensure bona fide claimants don’t miss out, after new data revealed that the total value of R&D tax credits claimed by businesses has fallen for the first time ever – down by £275m in a year.

He added: “£275m represents a significant reduction of R&D tax credits claimed by businesses and even more notable as the first ever decease – thought there could be several contributing factors. It is possible claims are down because of processing delays by HMRC, which have become particularly lengthy in the past year, post-pandemic, and might not yet be showing as claimed.

“It could also be that additional checks by HMRC, as it continues to clamp down on fraudulent claims, is starting to have an effect, with non-qualifying claimants put off from making a claim. The risk is that higher levels of bona fide claimants are also being put off making claims, with lengthy enquiries disrupting cashflow at a critical time and potentially leading to closure.

“For those still making claims, it is likely HMRC’s more aggressive stance has resulted in greater levels of caution and businesses making smaller claims than they are entitled to.”