What Do UK Tax Leaders Think Of Recent Changes To The R&D Tax Landscape? Evolution Or Revolution

What Do UK Tax Leaders Think Of Recent Changes To The R&D Tax Landscape? Evolution Or Revolution

At the end of November 2023, we held our second roundtable discussion. Following the success of our first event in April 2023, it is important to bring leaders together again to discuss the many recent changes that have impacted our industry in a short space of time.

Set in the beautifully festive boardroom at Fortnum and Masons we gathered 15 R&D tax leads from the top 50 firms and Tax dispute experts as well as a Shadow Minister, to ensure we had a discussion that represented multiple stakeholders and diverse viewpoints.

What makes a competent professional?

HMRC is increasingly questioning what makes a competent professional within the enquiries they are raising. HMRC seem to be narrowing the scope of what is necessary to define a competent professional. This is a frustrating position. There was collective agreement on how important the role of the competent professional is but also that HMRC’s current stance is now too narrow.

This further led to alarming examples where businesses choosing to protect their Intellectual Property through trade secrets are being penalised, and their claims are being assessed as not compliant.

HMRC’s lack of engagement and training

The frustration over the lack of engagement with HMRC is continuing to be a concern with little improvement since our conversation in April. The inability to speak to a specific individual who is allocated to the case and therefore informed and knowledgeable about the specifics of that case is resulting in incorrect communications leading to a lack of clarity on areas of enquiry. This highlights the need for HMRC to invest in training and education for their staff to ensure consistency in their messaging.

The lack of consistency and apparently minimal training of HMRC staff are leading to genuine claims being challenged and then for commercial reasons, companies are deciding not to fight when they should. If the aim was to address the level of fraudulent claims, then it now seems that HMRC is also acting as a barrier to genuine claims meaning we are seeing genuine businesses walking away from the UK innovation market. This is being made more frustrating as it could be rectified but if it isn’t, we certainly risk the payback of previous R&D subsidies. It was noted that the core payback metrics of spillover and additionality are long term (10 years+) so the actions now will continue to damage the UK’s position on the global stage.

Announcement of the merged R&D tax relief scheme – but what’s the policy?

As expected, the recently announced merged R&D tax relief scheme was a big topic of conversation. There was an overriding sense that we still lack any clarity on the policy objectives and also a lack of alignment on policy for incentivising R&D in key sectors. As a result, it is too early to tell what the impact on clients will be, but it will need to be assessed year on year. The attempts at simplification are welcome in terms of subsidised costs and contracting, but there was challenge as to whether the changes will make any impact on the prevention of fraud.

What is very clear is that the profession and their clients are desperate for clear policy goals that R&D tax relief is trying to support. Without that north star statement, it is feared that even with the current raft of changes R&D tax relief won’t be as effective as it could be, and has been in other countries.

The advisory market has seen some positive changes thanks to the increased scrutiny and changes in legislation, namely that poor quality advisors and rouge traders are now closing their doors. If that was by design or luck from HMRC is moot but certainly welcomed. There is now a real challenge for the wider accountancy profession who handle R&D tax relief claims that if they don’t have the technical depth and multiple skillset needed, this may become a service that is not offered on mass. As long as there is still a competitive advisory market that gives choice, this is welcomed but it is critical that businesses have access to the right advice.

What of the future of R&D in the UK

And finally, our closing question is, can we be optimistic about the R&D and innovation in the UK? The overriding opinion was that a general election could be the change we need to see a positive impact for UK’s innovative businesses. However, is R&D going to be top of the agenda or the vote winner for an incoming Labour government? Probably not.

Have a question about R&D Tax Credits? Contact Eric Larson or Luke Hamm.

TaxConnections Admin

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