Preventing abuse of R&D Tax Relief - 2018 Autumn Budget Review
As part of the 2018 Autumn Budget announcement (Monday 29th October) Chancellor Philip Hammond unveiled new measures to help prevent abuse of the R&D SME tax relief initiative.
Chancellor Philip Hammond said: “And we’ll stop our generous R&D Tax Credits system being abused by re-introducing a PAYE restriction for the small and medium sized companies’ scheme.”
As part of the Finance Bill for 2019-20, the amount that a loss-making company can receive in R&D Tax Credits will be capped at three times its total Pay As You Earn (PAYE) and National Insurance contributions (NICs) liability. This change will take effect for the accounting periods beginning on or after 1 April 2020. Any loss that a company cannot surrender for a payable credit can be carried forward and used against future profits.
While the R&D Tax Credit initiative is meeting its purpose: to encourage innovation and enable UK companies to compete in a global marketplace, ensuring post-Brexit economic prosperity. HMRC have identified (and prevented) fraud attempts on the SME payable tax credit, worth £300 million in total. In these cases, companies were set up to claim the cash available through the payable credit even though they have no legitimate R&D activity.
Tom Verner, Group Managing Director for The Momentum Group, leading R&D advisory firm says: “Like any marketplace that experiences a surge in demand for services, the number of companies providing ‘professional’ R&D Tax Credit advice has grown significantly. Alarmingly many companies are being misled and misinformed about the R&D tax relief initiative with assertions such as “everything you do qualifies”.
“The legislation pertaining to R&D Tax Credits is complex, and HMRC’s criteria for qualifying activities and expenditure is intrinsically specific and definitive. So much so that it requires an R&D Tax Credit advisor with technical expertise in a vast range of sectors to truly understand the processes that an organisation goes through when carrying out projects. Momentum welcomes a higher level of scrutiny as our approach has always been to apply the highest professional standards to every claim we prepare, resulting in a 100% success rate across hundreds of claims with over £100m R&D tax relief approved.”
Momentum has helped hundreds of large and small highly competitive companies, from manufacturing to construction, food & drink to technology, to claim this UK government incentive. The multi award-winning advisory firm assists in a range of areas, investing in understanding and optimising R&D expenditure. The team includes chartered accountants, business, commercial and ex-HMRC technical experts to ensure every claim gets the necessary expert scrutiny and is thoroughly investigated to meet HMRC compliance.
The latest annual statistics from HMRC announced in September 2018 showed the average received per R&D tax claim by manufacturing companies was £97,000. This ranks above the £85,000 average overall payment per claim across the industries surveyed. While HMRC statistics show many industries in the UK are wakening up to the benefits of R&D Tax Credits, the potential is far greater. In Momentum’s experience, there are still so many manufacturing businesses that are either not aware of R&D Tax Credits, incorrectly think they do not qualify or feel they lack the necessary experience to submit a claim. In fact, many companies are not claiming their full legitimate entitlement. Momentum is calling on more manufacturing businesses to act now on R&D Tax Credits, highlighting that the regional statistics could be much higher given the increasing investment in export here.
If you would like to find out more about a potential new claim, or review an existing claim then please contact Momentum for a free no obligation review.