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R&D tax boost for small businesses

Small and medium businesses will find it easier to claim tax relief for spending on research and development under the new advance assurance scheme, HMRC has said.

The focus of the scheme is on first-time claimant SMEs with a turnover of under £2m and fewer than 50 employees. It will be a voluntary, non-statutory scheme, available both to companies that have already undertaken research and development (R&D), and also to those intending to do R&D.

The program will then be made available to larger companies throughout the course of 2016.

HMRC’s ‘Making R&D Easier: HMRC’s plan for small business R&D tax reliefs’ explains the new rules, which aim to simplify R&D tax relief rules and promote awareness about them.

According to HMRC statistics, over 15,000 companies (large and small) claim over £1.4bn in R&D credits each year. But the document outlining the new scheme identifies that there is “more to be done to make this relief accessible for the smallest companies”, with awareness identified as a key issue in SME access to R&D tax relief.

The Institute of Chartered Accountants in England and Wales (ICAEW) remarked that it was pleased with the changes, especially the proposal for a new advance assurance service for small companies making their first claim.

Commenting on the Advanced Assurance program Jennifer Tragner, a director at R&D tax relief consultancy ForrestBrown said, “Any initiative set to promote the uptake of the scheme among SMEs should be welcomed,” said Tragner. “The measures will be a boon to any businesses embarking on a first-time R&D project, seeking assurances that the planned activities will benefit from R&D relief.”

Tragner continued, “The program will be unlikely to help those businesses already carrying out qualifying activities, simply unaware that the activities undertaken can qualify.

“Nonetheless the program demonstrates HMRC’s proactive attitude to encourage smaller businesses to claim R&D tax credits. It is also anticipated that the program will help improve record-keeping and claim methodologies, and help to improve the quality of R&D claim submissions amongst first-time claimants.”

Richard Edwards, founding director of R&D tax credit specialists Jumpstart was pleased that HMRC “is willing to give small companies better advice on how the R&D tax relief fits with and is affected by grant treatment – this is something that’s been missing for a while from most government bodies.

“Also, the fact that they’re trying to make companies’ lives easier by providing templates will help as well – it makes it much easier for companies to know the volume of what’s expected from them in order to justify their claim.

“It’s really good HMRC recognise that they need better guidance on sub-contracting”, Edwards continued. “The black and white numerical laws are quite straight-forward, but the application of those in practice can actually be very complex.”

However, Edwards found it noteworthy that HMRC are still trying to broaden engagement with companies to get more applicants, and are targeting sectors which are under-represented. According to Edwards the sectors might be under-represented for “a good reason”.

“There have been Commons select committees looking at R&D tax relief and asking ‘who’s in charge of returning value for money?’ They might feel the need to make sure we are getting value for money from the existing system before pushing more people through it.

“Linked to that, HMRC are saying they give an assurance to small companies that no questions will be asked for the first three years – I’d be interested to see how they implement that in practice.

“If a company that’s not claimed before says ‘we’re thinking about doing this, does this qualify?’ HMRC will have to give a very caveated response. It’s hard to see how they wouldn’t have to have more communication to check that the company had actually done what they said they were going to do. Companies can change their commercial or development direction quite quickly and there is possibly an opportunity to abuse the system.

“I’m hoping they’ll have adequate safeguards in place – we’ll see when they come out with more detail”.