HMRC R&D Tax Relief Reform consultation

ACCA welcomes the opportunity to provide views on the design of a single R&D tax relief scheme in response to a consultation issued jointly by HMT and HMRC. We would like to see both small to medium sized enterprises (SMEs) and large businesses fairly represented in the final scheme and echo HMRC’s own words:

The UK’s R&D tax incentives for SMEs and large companies are designed to encourage greater R&D spending in order to promote investment in innovation. The strong message from business is that simplicity, consistency and certainty are key in achieving the aims of the relief.

We have consulted through surveys, emails and expert interviews with our members including those working in practice and the corporate sector. In addition, we also wish to reference our response reference TECH-CDR-2031 to the recent HMRC consultation on “Draft guidance: Research and Development (R&D) tax reliefs” which we believe is linked to the discussion here and to which our members have also contributed.

There is also a public perception that the scheme is widely abused and that HMRC are cracking down, with stories in the press of R&D fraud letters. This promotes fear over the scheme.

Comments from our members suggest that through their networks they believe that some of the disreputable firms are exiting the market following further scrutiny from HMRC pointing to the fact that action by HMRC holds the most value to create impact. Albeit it should be imposed evenly.

We believe that HMRC needs to release more comprehensive guidance for business on how they could be eligible for R&D allowing HMRC to set out the legislative framework and parliamentary intent rather than some R&D agents controlling the narrative. Webinars with live Q&As could be held online or at events for SMEs, or specific targeted sectors (such as life sciences or technology etc.). Sharing examples of eligible R&D projects for the most common industries would be helpful and would raise public support for and confidence in R&D tax reliefs. As part of this engagement programme, HMRC should issue guidance to businesses on what to look for in an R&D agent, such as qualified tax professionals, accredited firms and regulated professional bodies.

Concern exists about the administration of the claims by HMRC as witnessed by our members. In our letter to the Chancellor regarding the Spring Statement, we asked the Government if they are concerned with the abuse rather than aiming to restrict the incentives, we call on them to confine R&D claims to certain avenues - through reputable companies and tax agents authorised by professional bodies who are signed up to Professional Conduct in Relation to Tax (PCRT). PCRT includes specific guidance to its members on how to provide R&D tax credit services. Leveraging the existing working relationships with tax agents and gaining reassurance through the professional body’s investigation and disciplinary procedures.

We are glad to see the objective is to support R&D.

Overall, the Government would like a system for supporting R&D which drives innovation and growth, is simple to use and administer and underpinned by the effective application of taxpayers’ money.

This appears to be backed up by a new dedicated Department for Science, Innovation and Technology (DSIT) with a seat in the Cabinet, another key steppingstone on the path to a more knowledge-based innovation focussed economy. Another example, the investment of £20 billion in the Rosalind Franklin Institute developing the 5 technologies of tomorrow.

The fundamental problem is whether a one-size-fits-all scheme and single policy approach offers incentives for innovation to the entire business community in wider focus. A RDEC approach suits a larger company in, say, the pharmaceutical sector rather than attracting the UK or overseas based international investor. We are concerned that the current measures give the impression that the UK is not focusing on innovation through all business in the economy and the knock-on effect is that investors will look elsewhere. A concern shared by our members.

There's a suggestion also from our membership to expand relevant topics beyond pure maths –

"In a modern society the study of anthropology, economics, political science, psychology, and sociology, could be extremely influential."

There’s a question about whether the existing or proposed schemes are agile enough for the changing landscape? Flexibility and agility should be built into the system and schemes and highlighting the attractiveness of the UK for innovation and business.

Finally, we would like to see bolder objectives, taking into account, some of the recommendations from the Skidmore Review on matters such as the green agenda, net zero commitments - specifically to “UN Sustainable Development Goal (SDG) number 9 - Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation” and is one which ACCA is committed: “We will empower our community so they can support organisations to be ethical, sustainable, successful and able to participate in the global economy.

To read the response in full, please download the consultation response document.