R&D claim delays give businesses food for thought

On 14 June, HMRC announced they will be “enhancing our extensive compliance checks” on R&D claims so they are extending their “standard processing” target for R&D claims to 40 days. Before the recent “pause” on paying claims, processing was taking around 40 days in practice anyway, so it remains to be seen if the new regime will add further to that timeline.

HMRC has confirmed this week that it has halted payment of some research and development (R&D) tax credits, while it investigates irregularities in claims for the relief.

The move is to mitigate potential abuse of the tax relief and the tax authority has admitted that it will result in delays to processing times for other R&D tax credit claims - a delay that many businesses could do without, particularly in the current climate where the balance between income and expenditure has never been more pronounced. While it is encouraging that HMRC is cracking down on any abuse of the scheme, the move may be further compounded by what appears to be general slow response times at HMRC in processing claims.

The R&D tax relief is a key driver in encouraging innovation and supporting companies that are trying to push the boundaries in their field. While new onshore tax relief rules – aimed at enhancing UK innovation and better policing genuine UK R&D – will leave many needing to rethink their entire tax and innovation strategy over the next 12 months, current delays in claims present a very real and immediate concern.

So what do businesses need to do to ensure they are not impacted by HMRC’s apparent desire to uphold and challenge certain R&D claims?

• To ease any pressure on cashflow, submit your R&D claim as soon as possible to mitigate any delays in payment.
• When submitting a claim, make sure you clearly define your case and how you arrived at that decision, to prevent any potential challenges on HMRC’s part, completing all entries on the R&D section of the corporation tax return (CT600 form)
• Ensure you submit a well-structured, technical report to support your R&D claim, with HMRC stating that ‘submitting additional information to support any claim, such as an R&D report, will also help HMRC to process claims quicker’. This will also leave HMRC in no doubt about the reasons behind the submission.
• Choose an experienced R&D tax specialist who can guide and support you through the process, as the tax authority has warned that if a claim is incorrect, inflated, or fraudulent then a penalty could be issued.

It’s clear that HMRC is asking more questions than ever before and challenging an increasing number of R&D claims. As such, it’s essential for businesses to be aware of potential delays and ensure their business is geared up to cope with a lengthy R&D tax relief process, as ‘genuine’ R&D tax credit claims may also be delayed as a result of HMRC’s current stance.

If you would like to discuss R&D tax relief in more detail, please contact a member of the team listed.