The Economics Affairs Finance Bill Sub-Committee has published its report on the R&D reforms that were included in the draft Finance Bill 2022-23 (published last July).
The background is an HMRC estimate that £469 million of tax revenue is being lost as a result of error and fraud in the two existing schemes. The purposes of the statutory changes is explained in the Lords report as follows:
“The Bill proposes legislative changes to combat this abuse, including the requirement to provide HMRC with more detailed information about the nature of a claim, naming any tax adviser involved in preparing claims and requiring that claims should be endorsed by a senior officer of the company. It also introduces a requirement to give pre-notification of an intention to make a claim.”
However, the Lords report states that further action is needed to deal with the underlying problems:
- “Legislative changes within the draft Finance Bill 2022-23 are not effective in isolation and that improvements to HMRC’s compliance capability are also required. This includes a more focused and targeted approach to identifying suspect claims, greater expertise and potentially more resource.
- Fraud and error could be mitigated before claims are made if HMRC improved the support it provides to businesses. This includes both its guidance and communications to increase understanding of the scheme and expanding its existing Advanced Assurance process for claims by small and medium enterprises (SMEs).
- The Sub-Committee welcomes the extension of the range of qualifying expenditure for which R&D relief is available to include cloud computing and data licensing costs. It also welcomed the Government’s proposal to include pure mathematics within the scope of the definition for R&D.
- That the Government introduces some form of transitional relief for expenditure on specialised resource, which is not available in the UK, particularly for contracts which have already been entered into.
- BEIS and HMRC should work together on a new awareness campaign aimed at providing SMEs with accurate information about what is, and as importantly, what is not R&D.”
The CIOT has welcomed the Lords’ call for dropping the claims advance notification proposal.
Related content from Claritax Books
The UK’s special tax rules for Research and Development expenditure continue to offer valuable tax relief for companies.
This book explains how the scope of R&D relief is wider than is often imagined, whilst also showing the statutory conditions that must be met for a successful claim.