In recent years, HMRC has identified and successfully challenged several false claims for Research and Development (R&D) tax credit relief made by purported R&D Consultants. Many of these claims have been for projects that did not satisfy the criteria for the tax relief and some included overstated expenditure and consequently have been abusing the scheme.
This is a generous tax break. As a Small or Medium-sized Entity (SME), the expenditure qualifies for a tax deduction of 230% of the amount spent which can then be traded in for a tax refund of 14.5% where the company is loss making. Thus, £100,000 of qualifying R&D expenditure would potentially result in a tax refund to a loss making company of £33,350 and many of these R&D consultants charge a fee based on the amount of the claim.
The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. It cannot be an advance within a social science – like economics – or a theoretical field – such as pure maths.
The project must relate to your company’s trade – either an existing one or one that you intend to start up based on the results of the R&D.
To get R&D relief you need to explain how a project:
- looked for an advance in science and technology;
- had to overcome uncertainty;
- tried to overcome this uncertainty;
- could not be easily worked out by a professional in the field.
For more details, see: Claiming Research and Development tax reliefs – GOV.UK (www.gov.uk)
The number of spurious claims has resulted in HMRC notifying some accounting firms that they are temporarily suspending repayments and requesting additional information to support the R&D claims. HMRC has even started writing to companies alleging that their R&D claim may be fraudulent.