The current regime of claiming for enhanced credits against corporation tax is a generous one with up to 225% relief available for qualifying expenditure. In fact with HMRC tasked with approving these claims there has (rightly) been a rush of claims recently submitted by many different businesses.
HMRC aims to make 95% of its R&D tax credit payouts within 28 days and it is very easy to put in a claim and for it to be paid upfront and unchallenged (after all, it’s just a number in the tax return box), and we have recently seen examples where relatively little additional evidence has been provided to substantiate some claims.
However if the claim can’t be adequately substantiated or if the legislation has not been correctly understood HMRC could quite easily take the view that putting in a claim like this is negligent, pushing the time limits for them to make an assessment out to 20 years. It is therefore imperative that claims are fully considered and evidenced if businesses aren’t to inadvertently leave themselves with a “sword of Damocles” hanging over them.
The statutory time limits for HMRC to raise assessments are:
a) Four years after the end of the accounting period
b) The end of the accounting period following that in which the amount recovered was paid
c) Three months following the completion of an enquiry into a company return
In cases involving fraudulent or negligent conduct, the time limit is extended to 20 years after the end of the accounting period.
It is therefore essential for companies to understand from any provider:
1. What assumptions are being made in putting together the claim and assure themselves they are realistic, justified and correct?
2. What is the substantiating material (and contemporaneous evidence) that has been prepared in the event that HMRC queries the claim in the future?
3. Is the provider obliged to return their fee in the event that a claim has to be repaid several years later and is the provider established enough to ensure that they are likely to still exist several years later in the event that their fees need to be recovered?
However, it must be stressed that R&D Tax Credits are a useful instrument for many businesses and can genuinely encourage research and innovation through the UK taxation system but whilst encouraged by both government and HMRC, as with all tax planning care needs to be taken regarding selection of professional advisers, implementation, and record keeping.
Our team have many years of implementing successful R&D claims on behalf of businesses of all sizes, and will be happy to discuss if there is the possibility of an R&D claim with any business owner who has not taken advantage of the relief available. Please call your usual contact, or call 0845 177 5500 or use our online contact form