Delay with R&D tax claims as HMRC struggle to keep up…

The UK government launched R&D tax credits to encourage greater spending on the discovery and development of new ideas.

A popular scheme with companies across a range of sectors, it is designed to offer financial support for innovative activities in the spheres of research and development. Tax credits for small and medium sized companies, in particular, are increasingly generous, and can help to offset the substantial costs involved.

However, many businesses are still experiencing “significant delays” to their Research and Development (R&D) tax credit claims, as HMRC struggles to keep up with the scheme’s popularity.

HMRC aims for an R&D tax claim turnaround of 28 days, but it recently admitted that many claims take much longer, attributing the delays to a mix of the scheme’s popularity, a lack of resources, and HMRC’s duty to ensure payments are correct.

Jonathan Walton, managing director at Whitley Stimpson said: “We still have several clients who haven’t had their R & D refunds - despite HMRC saying that they would be sorted by 30 September 2019. The situation is slowly improving, although there is still some way to go, particularly for R&D expenditure credit (RDEC) claims.”

Alongside recruiting extra staff, HMRC has committed to a range of measures to improve the situation, including treating R&D tax credits and RDEC (for larger companies) the same, moving claim processing to the customer services department and vowing to keep the R&D Consultative Committee abreast of its performance.

The R&D credit significantly reduces the tax liability or in many cases effectively provides a lump sum payment to the business courtesy of HMRC. Unfortunately, this has meant that the scheme has proved vulnerable to abuse.

“Whilst it is clearly a good thing that the government is trying to stop this type of abusive R&D claim, a cap will inevitably impact claims from some companies who, for genuine reasons, have small PAYE/NIC liabilities. This was a particular criticism of the original cap, especially for smaller companies, such as start-ups with low PAYE/NIC liabilities.”

Jonathan Walton, Managing Director, Whitley Stimpson

The government has therefore brought back a claim cap based on an organisation’s total National Insurance Contributions (NICs) and Pay As You Earn (PAYE) liability in any 12-month period. Businesses acting fraudulently (and those where UK-based R&D projects amount to basically just taking the payable credit) usually do not employ a lot of staff or pay NICs and PAYE, hence falling foul of the cap. HMRC believes it has already prevented £300m of fraud, including deliberate claims where there’s little or no actual employment or activity in the UK.

This cap is now for three times the company’s total PAYE/NIC payment for the period, compared with just ‘one time’ previously. It is important to note that the cap will apply only to claims for the payable tax credit, and it will not affect the calculation of the enhanced R&D expenditure itself.

Since the introduction of these credits, Whitley Stimpson which has offices in Banbury, Bicester, High Wycombe and Witney, has helped many companies with successful claims. These range from technology businesses, right through to traditional engineering and manufacturing companies.

If you’re wondering whether your company qualifies for R&D Tax Credits or if you need help in navigating the waters around the new cap, speak to the specialist team at Whitley Stimpson today. We can help you to decide whether your business meets the relevant criteria and whether any credits can be applied for the R&D projects you’ve undertaken.