ABGI's response to House of Lords review
On Wednesday 20th July 2022, HMRC published the draft legislation surrounding the upcoming reforms to the R&D Tax Relief schemes that will form part of the next Finance Bill. Its goals are to expand the scope of expenditure for modern computing, refocus support towards innovation in the UK, and reduce / prevent abuse of the R&D tax relief scheme.
ABGI welcome the Finance Bill Sub-Committee’s inquiry into the proposed reforms as we agree that it is important to the effectiveness of the R&D Tax Relief scheme that the Governments gets these changes right. We believe it is vital that these changes tackle abuse of the R&D Tax Relief but do not have adverse effects on genuine claimants.
The report, by the House of Lords-appointed Finance Bill Sub-Committee, highlights concerns raised within UK industry about potential UK Government changes to the R&D tax relief scheme and suggests these will not have the desired impact. It calls on HMRC to provide a greater level of certainty to companies claiming for the relief.
Evidence presented to the Sub-Committee highlighted an escalation in abuse of the scheme which included large-scale criminal attacks alongside activities of 'rogue advisers' who target small companies encouraging them to make invalid claims. In its most recent accounts, HMRC estimate the amount lost to error and fraud within the R&D tax relief scheme amounted to £469 million.
The House of Lords Sub-Committee report’s conclusions and recommendations included:
- Proposed legislative changes will not be effective without improvements to HMRC’s compliance capabilities, including a more targeted approach to identifying suspect claims, increased expertise and more resources.
- That guidance should have been provided sooner as the changes are imminent which allows companies no time to prepare for these.
- Fraud and error could be mitigated before claims are made if HMRC improved its support to businesses, including doing more to increase understanding of the scheme and expanding its existing ‘Advanced Assurance’ process for SME claims.
Our Tax Director, Douglas Reid, commented:
“We are delighted that the Committee accepted our response as evidence and referred to it multiple times throughout their report. Its key recommendations – that HMRC should have a more targeted approach to identifying suspect claims, increased expertise and resources – are issues ABGI has been highlighting for years.”
“We echo the Committee’s views in welcoming the extension of qualifying expenditure to include the costs of datasets and of cloud computing. It is encouraging to see the Government and HMRC recognising the evolution of R&D and activities and expenditure which facilitate it. We also welcome the expansion of the definition of R&D to include advances in pure mathematics which we believe simplifies the scheme."
ABGi has prepared answers to each of the inquiry’s questions and hopes this helps formulate policy that continues incentivising investment into research and development across the UK economy.