HMRC’s R&D stance changes

Research and Development (R&D) tax credits are a tax relief paid by HMRC to UK companies to reward innovation. Investment in innovation is critical to the UK’s economic recovery, and for many small businesses, R&D tax relief is vital.

HMRC’s R&D stance has recently changed though, which could cause problems for our most innovative companies.

The problem is being caused by HMRC’s amended stance on customer-led R&D, as it claims that these costs are already subsidised.

If you already claim for R&D, now is a good time to review that claim, or you could be at more risk of a challenge from HMRC.

Where is the risk?

Customer led R&D could be classified as any R&D undertaken to develop products or services with specific customers in mind.

For SMEs, this is likely to be all the R&D undertaken!

Many businesses use an external provider for R&D claims, so have little contact with HMRC before the claim is submitted. The first they are likely to hear on the subject is when HMRC raise an enquiry. Reports are already coming through from accountancy firms that they’re seeing a significant increase in the volume of enquiries being opened into R&D claims.

HMRC is in the process of updating its guidance around the subject, and as soon as this is live, all claimants would be wise to review any submissions to HMRC to protect their position.

What will happen if this continues?

For development of new products and services to be cost-effective, businesses would ordinarily, and logically, only develop them when they have an identified market. True ‘blue sky thinking’ is incredibly rare, particularly in a commercial world, so if businesses are precluded from claiming for customer led R&D, innovation will become more expensive, and many businesses will reduce or stop their efforts.

Thus the innovation for which the UK is renowned will be reduced and potentially suffocated. HMRC’s R&D stance is crucial to the recovery of the UK Economy, and the longevity of our small businesses.

What can you do?

Until the revised guidance has been issued, there’s a limit to the action you can take, but we’d recommend the following:

• For the clients where we prepare and submit an R&D claim, we’ll be monitoring the situation and keeping them informed as we find out more.
• If you use an external R&D agency, speak to them about HMRC’s R&D stance as soon as possible.

If you’re unsure whether you can claim for R&D costs, or perhaps have been meaning to talk to us about it – now’s the time! Please get in touch, and we’ll bring you up to date on the current position, and help you work out whether you could be eligible.