R&D tax: key points in the recent consultation

This post is part of our Entrepreneurial team’s regular series of blogs.

Research & Development Tax reliefs (R&D) play a key role in promoting UK investment by reducing the costs of innovation, so it’s unsurprising that the Government wants the reliefs to remain up-to-date, competitive and well-targeted.

A consultation on the future of R&D Tax relief recently closed, exploring how this is supported and whether changes may be appropriate. Below are some of my thoughts on the key points brought up.

The case for consolidating the two schemes into one

In some instances, the R&D Tax legislation can be overly complex. Having two schemes means having two overlapping sets of rules instead of a single coherent system. Simplifying and consolidating the schemes makes sense, provided SMEs continue to receive preferential rates.

The RDEC model provides a step-by-step methodology for the calculation, and it would therefore make sense for the SME scheme to mirror this by standardising the process. Ultimately this should help HMRC review the claims effectively, improving turnaround times.

R&D compliance

There have been growing concerns over the past few years that the system does not provide adequate controls for the allocation of tax credits. HMRC aim to process claims within 28 days. However, due to their sheer number, there isn’t a lot of time for them to consider every case in detail. Whilst HMRC have the power to enquire into claims after they have been “accepted”, we should look to develop the incentive so that it provides as much certainty as possible in the first instance. After all, getting it right first time should be good for everyone and improve consistency throughout the process.

The new CT600L form helps this to a certain degree, but new regulations are required. Currently, there is limited regulation covering who can provide advice and the supporting documentation required. R&D Tax can have a significant impact on a company’s tax position and strategy, so it’s important that companies get the right professional advice on the matter.

Comparatively, other business advisory professionals (such as accountants and lawyers) must rightly conform to regulation and governance from their respective industry bodies. There is no such body to regulate R&D specialists. New regulation in this area would help to improve consistency and ensure companies are not put at risk of making an illegitimate claim.

Qualifying expenditure and new R&D definition

The world is ever-changing and, as such, incentives should adapt accordingly. Modernising the ‘software costs’ category to accurately reflect how data and hosting costs contribute to R&D processes is welcomed, and I hopefully look forward to this being reflected in both updated legislation and guidance once the consultation is complete.

It is also good to see the Government considering whether the R&D definition needs updating. This is especially necessary in terms of clarity, or to widen the kinds of research covered by reliefs. The UK definition of R&D was set out last in 2004, therefore it is definitely due a revisit. There’s a particular opportunity to identify better ways to address R&D practices and fields, which have changed significantly since then.

Overall, change is definitely coming. However, I view it as a positive modernisation. Genuinely innovative companies shouldn’t be worried about change, as the ultimate goal is to update and target the reliefs, whilst helping attract and retain key businesses in the UK.

If you have any questions about R&D tax relief, get in touch with our team.

Raising standards in the tax advice market – how do you choose a tax adviser?

This post is part of our Entrepreneurial team’s regular series of blogs.

Tax advisers, their reputation and the risks to clients of making the wrong choice in selecting one, are under the spotlight like never before.

HMRC have published a summary of responses to the call for evidence and next steps, in relation to the recent consultation on raising standards in the tax advice market (the full outcome can be found here).

An independent review into the tax advice market in 2019 highlighted varying levels of standards and cases where taxpayers received advice that left them open to substantial tax bills. While the majority of tax advisers are technically competent and adhere to high professional standards, it was found that some advisers were displaying incompetence and others were actively bending or breaking the rules.

This prompted HMRC to open a consultation into improving the standards of advisers across this field. Their aim was to help taxpayers make informed decisions when seeking tax advice, to assure them that the advice they receive is competent, professional and trustworthy.

The consultation highlighted indicators of tax advisers with high standards that taxpayers should consider, when selecting a tax adviser. These included:

  • Holding accountancy qualification(s)
  • Having relevant experience
  • Complying with the PCRT (Professional Conduct in Relation to Taxation), including ethical practice
  • Not taking shortcuts
  • Acting transparently
  • Seeking to educate clients
  • Undertaking due diligence on clients
  • Recognising their own expertise and whether they are appropriately placed to offer advice
  • Having professional indemnity insurance
  • Being a member of a professional body
  • Being registered for anti-money laundering supervision

C+T meets all of the above points and consistently provides high quality standards to all of our clients, whether that be for compliance engagements or providing more complex tax advice. We have specialists across many aspects of tax who can help in areas such as, but not limited to, Capital Allowances (CAs), creative industries tax reliefs, R&D tax relief, (S)EIS, share schemes and VAT.

As we are accountants, we understand the bigger picture in relation to how these areas of tax interact with compliance requirements and can help companies utilise any available tax reliefs in the most efficient manner, and in a way that fits with their long-term strategy.

For more information on how the Chiene + Tait team can help you, contact us today at mail@chiene.co.uk or call 0131 558 5800.