R&D tax credit deadline: Don’t miss out if you incurred R&D spend in 2019/20

R&D tax credit deadline: Don’t miss out if you incurred R&D spend in 2019/20

The March 31 deadline for claiming R&D tax credits for the 2020 accounting period is fast approaching for those with a March 31 year end, but as HMRC redeploys 100 compliance offers, working with an unregulated provider could lead to trouble in the future

For more than 20 years, SMEs doing innovative research and development (R&D) work have been entitled to corporation tax relief in the UK. More costs qualify for relief than many businesses realise, including staffing, materials used for constructing prototypes, software, and even the cost of paying clinical trial volunteers.

Businesses can claim tax credits for up to two years after the end of the accounting period in which the R&D work was carried out, but if the deadline is missed, the money is lost forever. With this year’s deadline of 31 March fast approaching, it’s important to be prepared.

This year, however, change is afoot at HMRC. After a period spent focusing its resources on dealing with the pandemic, the department has signalled a crackdown on fraudulent R&D claims, recruiting 100 new inspectors to scrutinise them.

“We sometimes hear people assuming that their R&D claims over the years must have been approved because HMRC has paid out in the past,” says Justine Dignam, Incentives and Relief Director at Markel Tax. In reality, she says, “HMRC’s R&D division has been under-resourced, so not many claims have been investigated, whereas, more recently, they’ve been quite vocal about their intention to tackle the sector and will be reviewing more claims going forward.”

Another common misconception, Justine says, is people thinking that if their claim does get reviewed, they’ll only have to pay back the money for that accounting period. “That’s not the case. HMRC have the power to go back up to 20 years if they suspect fraudulent activity, they have a responsibility to protect the public purse so may look to pursue the maximum recuperation of the tax benefits received. If they find irregularities, they’ll be interested in when that behaviour was established and how long a business has been claiming incorrectly. On top of that, companies are also likely to face penalties and fines if they’re found to have claimed incorrectly.”

Avoiding unregulated providers

The number of claims made has risen steadily in the past five years, reaching almost 86,000 in 2019-20, worth around £7.4bn. Over this period, says Justine, “there’s been a huge surge in unregulated R&D providers entering the market”, which has led to “some really aggressive claims” being submitted.

Unregulated providers may suggest that an R&D claim can be submitted very quickly or for an unrealistically low fee, but in the event of an investigation by HMRC, they may not have the knowledge or experience to deal with it. This is a problem for businesses, as an investigation can be costly and time-consuming, and can even risk reputational damage. “It’s the responsibility of the company’s directors to ensure that they establish a relationship with a credible provider, to ensure that any information submitted to HMRC is a true reflection of the company’s financial and business activities,” says Justine.

Working with a regulated provider is likely to become even more important in the near future, as the government intends to introduce new legislation aimed at cracking down on abusive claims. Under these proposed new rules, to be introduced from April 2023, claims will need to be attributed to a named member of staff, and HMRC will require details of anyone who advised the company on its claim. But with HMRC’s new focus on R&D already underway, it’s best to act sooner rather than later.