HMRC has begun cracking down on companies’ payments for research and development, with some being asked to repay money they previously received. This follows the Autumn Budget’s announcement of changes to how research and development tax credits are calculated and allocated.
HMRC is believed to have routinely underestimated the level of fraudulent claims for several years. Tax authorities, wary of further mistakes, are not only making current application procedures more stringent, but also reevaluating past claims. This has resulted in several companies being hit with notices saying they must repay tens of thousands of pounds to HMRC.
Anxiety for small and medium-sized businesses
Ben Westoby, senior client manager at Forbes Burton, is already seeing this change disrupting some businesses. He said: “Some small businesses are reliant on research and development funding given to them by HMRC and are facing much longer wait times for decisions on their applications,” adding: “The holdout is causing anxiety for many directors. “It’s happening,” he added. Not only can delays cause problems, but their claims may not be deemed worthy of payment at all. ”
Tina McKenzie, policy chair for the Federation of Small Businesses, has noticed a similar increase in worried business owners. The organization has been approached by a number of companies about this development. She said: “HMRC has taken the wrong approach to research and development claims, past and present, to the detriment of the innovative small and medium-sized businesses we need to grow our economy.”
He explained that HMRC “needs to recognize the importance of a predictable and supportive tax environment for businesses that are at the forefront of technological innovation and are increasingly smaller”.
HMRC will try to avoid repeating mistakes
The reassessment of old claims was recommended by the National Audit Office’s spending watchdog after HMRC estimated that more than £1bn was mistakenly donated to small businesses during the 2020-21 financial year.
Jeremy Hunt’s Autumn Budget set out plans to streamline the R&D claims process by merging existing RDEC and SME scheme rules. However, the resulting policy cuts drew criticism from some quarters, with some saying the measures would help large companies while making it harder for small and medium-sized enterprises to receive support.
Further reforms are scheduled to start from 1cent In April 2024, HMRC is keen to reduce the number of fraudulent claims paid out. Their own report estimates that 16.7% of all research and development tax credit applications were fraudulent or issued in error.
One of the main drivers of successful advocacy is demonstrating innovation. However, some believe this is a gray area and debatable. Measuring innovation can be difficult, and it can be difficult to even know exactly what HMRC is looking for, so many will be hoping for further clarity in the future. In the meantime, concerns remain that extra red tape could hinder real innovation from small and medium-sized UK businesses.
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