HMRC's crackdown on the abuse of R&D tax relief claims is having a chilling effect on small businesses, according to the Chartered Institute of Taxation (CIoT).
The CIoT says that HMRC is rejecting legitimate claims by SMEs, making it more difficult for them to finance their research and development activities.
"HMRC's approach to R&D tax relief is becoming increasingly burdensome and bureaucratic," said CIoT tax policy director Adam Owen. "This is making it harder for SMEs to access the relief they need to invest in innovation."
The CIoT is calling on HMRC to review its approach to R&D tax relief and to make it easier for SMEs to claim the relief they are entitled to.
"R&D tax relief is a vital tool for supporting innovation in the UK," said Owen. "HMRC needs to ensure that its approach does not discourage SMEs from investing in research and development."
Here are some of the problems that SMEs are facing with R&D tax relief:
- HMRC is asking for more and more documentation to support claims, which is putting a strain on SMEs' resources.
- HMRC is taking longer to process claims, which is delaying the flow of funds to SMEs.
- HMRC is rejecting more claims, even when they are legitimate.
These problems are having a negative impact on SMEs' ability to finance their research and development activities.
- SMEs are less likely to invest in R&D if they are not confident that they will be able to claim the relief they are entitled to.
- SMEs are having to spend more time and money on preparing their claims, which is taking away from their research and development activities.
- SMEs are having to wait longer for their claims to be processed, which is delaying the benefits of their R&D investments.
The CIoT is calling on HMRC to take the following steps to address these problems:
- Streamline the R&D tax relief application process.
- Reduce the amount of documentation required to support claims.
- Be more transparent about the criteria for assessing claims.
- Provide more guidance and support to SMEs on how to claim R&D tax relief.
HMRC said:
“We are committed to tackling non-compliance in the R&D schemes, which is why we have more than doubled resources dedicated to tackling abuse of the schemes.
Our overarching compliance approach is to direct resources where they make the biggest difference. Therefore, we step up activity if we see increased non-compliance in an area, such as in R&D tax reliefs. We undertake a range of interventions from encouraging customers to self-correct errors to blocking claims where we suspect fraud alongside our usual enquiry processes.”
In other words HMRC have closed their ears to advice/criticism.
Tax does have to be taxing.
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