Is your client's R&D tax relief claim delayed?
If so, they’re not alone. Although HMRC’s own target is a 28-day turnaround time, R&D Tax Credit claims are currently taking considerably longer.
Unfortunately, if your client is claiming under the Research and Development Expenditure Credit (RDEC) branch of the scheme, the delay is even worse - in some cases taking over 200 days. Although RDEC claims are not subject to the same 28 day deadline, it’s still taking far too long; and this could have huge financial ramifications.
What are R&D Tax Credits and who can apply?
Research and development (R&D) Tax Credits are all about fuelling business growth and rewarding innovation. It’s a government-backed tax incentive scheme that offers a valuable source of company funding, which can then be reinvested in the business. The relief is given either in cash or as a reduction in Corporation Tax, which could also be used for taking on more staff, paying for materials and ultimately growing.
UK companies that have spent out money on the development of new products, services or processes - or on enhancing existing ones - can qualify for R&D Tax Credits. The scope for identifying R&D is incredibly broad, with opportunities across every single sector. Plus, if your client is claiming for the first time, they can generally receive the relief for their previous two completed accounting periods.
The R&D Tax Credit scheme is open to any UK company as long as they:
- Are a limited company that is liable for Corporation Tax
- Have carried out, and spent money on, eligible research and development projects
Essentially, if your client was not sure at the beginning of the process whether the project was even possible, or how to achieve their goals, then they could have been resolving technological or scientific uncertainties that would then make them eligible for R&D Tax Credits. No matter what size, sector or industry your client’s business is in, if there has been some risk in attempting to address such technological or scientific uncertainties then the work could well be eligible.
In terms of how much the benefit will be, SMEs are able to receive as much as 33p for every £1 spent on relevant R&D activities, whilst for companies claiming under RDEC it’s up to 10p for every £1 spent.
The government has laid out very specific definitions about what the accepted R&D types actually are. Notably, the project itself doesn’t even have to have been successful in order to apply - the focus is on what R&D work specifically took place. Your client can also include work they undertook for a third party, in addition to their own projects.
To find out more about the scheme and how to apply, please visit the R&D Tax Credits page on the Myriad Associates website.
Why has the R&D Tax Credits claim system become so backed up?
In our experience this is often due to one of two circumstances that then lead to backlogs and delays. The first is actually because the R&D Tax Credits scheme is so incredibly popular. It’s a lucrative one, and very successful, with more and more companies deciding to apply over the years. Although this is fantastic news, there is still a long way to go.
Unfortunately, like many government bodies, HMRC has suffered a reduction in the number of staff that work to process the claims. Some of this is due to austerity cuts, whilst some staff have been relocated to help prepare for Brexit. Obviously no one wants to cut corners for the sake of speeding the claims process up, but less staff means longer delays.
Are HMRC working to tackle this?
Yes, HMRC have accepted that there is an issue here and laid out a plan of three main things they are doing to help reduce the waiting time. These are:
- Training more staff specifically to deal with R&D Tax Credit claim processing
- Including both SME and RDEC claims altogether within their processing procedures to help clear the backlog
- Bringing claims processing under the umbrella of customer services at department level. As this is a larger group of people, there will then be more capacity to deal with any fluctuations in demand
How are things likely to pan out in the near future?
If you’re a company accountant working with a client on their R&D Tax Credit claim then the good news is things are due to improve. HMRC will continue to strive for their 28-day turnaround time, and keep companies updated on progress as best they can. Additionally, by working alongside R&D tax relief experts such as ourselves, you will benefit from the strong working relationship we have with HMRC. This will mean you stay in the loop and have extra back-up if HMRC queries arise or prompting is required. Indeed it is hoped that improvements will continue and the pressure on the system will ease in due course.
Don’t let this put your client off making a claim
If your client is thinking about making an R&D tax relief claim, don’t let any potential delays put them off. Part of our working alongside you means chasing HMRC on your/your client’s behalf, so no going round in circles or hanging on the phone.
Whatever industry, sector or niche your client’s company is in, if they have recently carried out innovative scientific or technological work then it’s well worth making the call.
The average claim amount for SMEs is £65k - money your client would surely be pleased to have back.
Get in touch with the experts
If you’re a business accountant who’s not sure about any aspect of R&D Tax Credits, speak to the team at Tax Cloud UK on 0207 118 6045 or use our contact form today. We can work alongside you in giving your clients the most accurate R&D tax relief information and advise you through their claims process.
Our handy Tax Cloud Portal for Accountants is a quick and easy way for accounting firms to offer a comprehensive R&D Tax Credit service, and was created by the experts at Myriad Associates. It even integrates with Xero and is a great way to attract new clients and boost your bottom line too.