R&D tax credits: a round-up of the recent news headlines
R&D tax credits have become a hot topic in the news of late, capturing headlines across the industry and more broadly. There’s a lot to keep up with.
In this article, we provide a roundup of the key headlines from the last few months.
HMRC release its annual report and accounts, which indicate promising statistics
The latest HMRC Annual Report and Accounts reveal a promising development: policy and operational measures implemented by HMRC are estimated to have reduced error and fraud in R&D tax credit claims to an overall level of 7.8% for the 2023/2024 period. Particularly encouraging is the finding that only 10% of claims examined in the most recent random enquiry programme (2021/2022) were deemed fraudulent, meaning that the vast majority seem to be due to error rather than intentional misconduct.
It’s important to understand that these figures are based on estimates and assumptions. Industry experts have long suspected that HMRC’s historical estimates of fraudulent behaviour in the industry may be higher than the true figure. Additionally, the distinction between fraud and error has not always been clearly defined—a critical difference that significantly impacts the perception of the issue.
Landmark Tribunal Ruling in Get Onboard Ltd v HMRC Clarifies Burden of Proof and Cements R&D Definitions
Numerous first-tier tribunals (FTT) have been established whereby a company takes action to overturn HMRC’s decision to disallow an R&D tax credit claim.
In the recent First Tier Tribunal case, Get Onboard Ltd v HMRC [2024] UKFTT 617 (TC), the tribunal made several significant rulings which will be of interest to innovative companies. The FTT affirmed that while the initial burden of proof rests with the company, there comes a point where the “evidentiary burden” shifts to HMRC, requiring them to substantiate their position.
Additionally, the tribunal clarified that a “Competent Professional” involved in R&D does not need formal qualifications to be recognised as such. Crucially, the decision also established that using existing code or technologies does not preclude the possibility of qualifying R&D, reinforcing that innovation can occur even when building on existing tools. This outcome provides essential clarity and reassurance for businesses engaging in R&D activities.
Labour Government Commits to Stability in R&D Tax Credits While Fostering Innovation and Ethical AI Development
Since coming into power in July 2024, the Labour government, led by Prime Minister Keir Starmer and Chancellor Rachel Reeves, has laid out an ambitious plan to position the UK as a global leader in research and development (R&D). Building on the previous administration’s focus on innovation, Labour is committed to creating an environment where cutting-edge technologies can thrive, and ethical AI development is prioritised, ensuring the UK remains at the forefront of global advancements.
While Labour’s manifesto does not explicitly address the R&D tax credit scheme, it does promise to maintain a permanent full expensing system for capital investments and support the annual investment allowance for small businesses. In line with this, Labour’s Business Partnership for Growth prospectus, released earlier in the year, pledged to uphold the current R&D tax credits structure throughout the next parliament, providing much-needed stability after years of frequent changes.
With Labour now in power, businesses will likely welcome the news that no significant overhauls to the R&D tax credit scheme are planned. Instead, Labour intends to conduct a sector-by-sector evaluation of the scheme, starting with life sciences, to refine its effectiveness and reduce fraud and errors. This approach aligns with ongoing efforts by HMRC to crack down on fraudulent claims, ensuring the R&D tax credit system continues to support genuine innovation while maintaining integrity and fairness
Revelations of Illegitimate Practices in the R&D Tax Credit Sector Highlight the Crucial Need For Choosing Ethical Advisors
Recent investigations have shone a spotlight on troubling illegal practices by a handful of companies working within the R&D tax credit advisory sector. As the story gains momentum, further revelations are expected. This situation underscores the critical importance of selecting a trustworthy and reputable advisor when navigating the complexities of R&D tax credits. Partnering with the right advisor ensures compliance and protects your business from the risks associated with unethical practices in this increasingly scrutinised field.
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