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R&D tax Relief – continued scrutiny, the House of Lords report

On 31 January 2023 the House of Lords Economic Affairs Finance Bill Sub-Committee published its report, “Research and development tax relief and expenditure credit”. Since October 2022, the Sub-Committee collected oral and written evidence relating to the proposed R&D tax relief reforms set out in the draft Finance Bill 2022 – 2023 which was published in July 2022. An escalation in the abuse of the R&D tax relief regimes (including criminal attacks, spurious claims, significant instances of error) has led to these government incentives being under scrutiny, under review and under the spotlight of HMRC’s compliance checks. At ela8 we welcomed this review, contributing to the call for evidence with a formal written submission back in November 2022.

The House of Lords Sub-Committee noted that the loss of revenue arising from fraud and error in this space was concerning and, as a result, their review was wide-reaching, considering the role and impact of R&D tax relief and its cost, administration of the regimes, HMRC compliance activities and resourcing, tackling abuse within the regimes, the role of agents and advisors, the experiences of claimant companies, awareness of and complexities of the regimes, the definition of R&D, HMRC guidance on R&D claims, refocusing relief to the UK and the continuing review of the regimes. In terms of the latter, the current consultation around the potential for a single, RDEC-like scheme for all can be found here https://www.gov.uk/government/consultations/rd-tax-reliefs-review-consultation-on-a-single-scheme, with responses due by 13 March 2023.

The full report from the Sub-Committee can be found here https://publications.parliament.uk/pa/ld5803/ldselect/ldeconaf/137/137.pdf, with pages 62 – 67 setting out the key conclusions and recommendations if you want a shorter read. We are pleased to find ourselves directly quoted within the report, and proud to be one of 58 respondents (you can search the document for "ela8" to find us). We will continue to be vocal on matters impacting the regimes.

What does this mean for claimants?

This focus of attention and report from the House of Lords Sub-Committee, the ongoing government consultation, the proposed legislative and relief rate changes alongside significant media coverage surrounding spurious, fraudulent and incorrect R&D claims has led to a very challenging environment for claimants.

Our response

Our response to these new conditions is twofold.

Firstly, we continue to support our clients by preparing high quality reports for submission to HMRC alongside their claims. These reports are specifically designed to address the more detailed questions HMRC are asking within their enquiry letters and reduce the chances of follow-on compliance checks. Secondly, we actively contribute to industry dialogue on R&D relief through response to HMRC consultations, participation in governmental reviews and attendance at the HMRC R&D Communication Forum. We are also seeking more detailed and individual dialogue with HMRC on the more fundamental issues associated to the R&D regimes, in the belief that the experience gained over 20 years of practice in this field can be used to help improve claim quality, reduce fraud and lead to better outcomes all round (for claimants, advisers and HM Treasury).

Despite negative press coverage and industry scrutiny, the R&D tax relief regimes offer valuable benefits to legitimate claimants and we are passionate about ensuring that businesses with valid claims continue to access this in an appropriate way.

You can find out more about us on our new website –www.ela8.co.uk– or get in touch by phone/email if any of the above is of interest or concern. We are always keen to hear from claimants, prospective claimants or interested parties.

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