Understanding the Present and Looking to the Future
An MD's Perspective on R&D Tax Credits
Matthew Jones, Founder and Managing Director at LimestoneGrey
There is a significant amount of noise in the R&D tax credit sphere, but don’t get me wrong, it is warranted. The sector has been hit by a wave of negativity and bad press. Big names in the industry have disappeared due to unlawful practices, claimant businesses are battling HMRC enquiries, and are understandably vocal on social platforms about their experiences, and multiple legislative changes have added a whole new layer of confusion. This environment can surely make businesses wonder if claiming R&D tax credits is worth the effort. The uncertainty and complexity might lead to companies asking … “Why should I bother?
Focussing on the positives of R&D tax credits
Despite the challenges, it’s crucial to try and remember the positives and what R&D tax credit relief stands for. R&D tax credits remain a valuable tax relief for companies, offering significant financial benefits. Even though the rates have been reduced and schemes have been altered, they can still provide a generous cash rebate. For companies committed to innovation, this relief can be a lifeline, supporting further research and development activities. The essence of the R&D tax credit system—to incentivise innovation and growth—does still remain, making it a worthwhile pursuit for eligible businesses.
Navigating the complexities
R&D tax credit relief is a valuable scheme, but there are a number of complexities adding undue stress and pressures for advisors and businesses alike, including:
HMRC practise
An increase in HMRC scrutiny, whilst daunting, should be a positive development. Heightened scrutiny is necessary to weed out incorrect and fraudulent claims, ensuring the integrity of the system. However, HMRC’s practices have rightly come under fire, particularly regarding their handling of legitimate claims. It is imperative that this is addressed so that genuine companies receive timely and fair processing.
Change in subcontractor interpretation
Currently, many businesses are in limbo concerning HMRC’s shift in subcontractor legislation, i.e. whose R&D is it.
This interpretation change has left genuine companies missing out on two to three years of claims. Pending tribunal verdicts will hopefully provide clarity on whether HMRC’s actions were lawful, allowing the companies affected to work out a plan of action with their advisor.
HMRC has significantly updated its position on subcontracting for the new schemes, stating that the claim, broadly speaking, lies with the company that decided to do the R&D (despite the existence of a commercial contract with a customer), a significant and substantial shift from their recent draconian interpretation which has denied many SME’s from being able to claim.
New R&D tax credit schemes
The aim of merging the SME and RDEC reliefs was to create simplicity for businesses, allowing for a single relief with a single set of rules and regulations. However, as a reaction to intense criticism, the R&D Intensive SME relief was born with a new set of rules and regulations. So we are back to where we were at the start. Two different reliefs.
During this transition period, there are five different reliefs available to companies. Deciding which one is applicable to your company depends on a variety of factors including your company’s financial standing, your investment in R&D and the date when the R&D activities took place.
New legislative requirement
The new pre-notification rule, in my opinion, is one of the most substantial changes announced. It requires certain companies to pre-notify HMRC of their intent to claim R&D tax credits in advance. The rules to determine if a business needs to pre-notify are so intricate, I am sure it will result in some companies missing deadlines and being unable to claim.
Overcoming the complexities of R&D tax credit relief
It’s important to acknowledge that not all advisors are the same. While there has been significant press coverage about unscrupulous advisors, there are many reputable ones committed to guiding companies through these challenging times. At LimestoneGrey, we frequently encounter businesses that have suffered from poor advice and are seeking reliable support. This underscores the need for companies to diligently select their advisor to navigate the complexities of R&D tax credits effectively.
My advice would always be:
Use a regulated consultancy
This will ensure that the advisor abides by an industry standard code of conduct.
Don’t make a decision on price alone
A lot of work goes into preparing a R&D tax credit claim, if an advisor can charge a much lower price, questions need to be asked if they are dedicating the sufficient time to your submission.
Research your advisor
Browse through their website and social media channels; do they have testimonials, are they affiliated with industry partners, have they been involved in industry awards. All this information will aid you in your decision process.
Looking to the Future
As we now enter a period of a Labour run government, the future of R&D tax credits remains uncertain. It will be interesting to see how the new legislation is rolled out under this government and if any changes will be made to it. This period of transition may present both challenges and opportunities, and businesses must stay informed and prepared to adapt to any changes that may come.
In conclusion, while the current state of R&D tax credits is fraught with challenges, there are still significant benefits to be had. With careful navigation and the right guidance and support, companies can continue to leverage this valuable tax relief to support their innovation and growth.
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