HMRC acknowledge that R&D improvements are needed

HMRC has accepted that their handling of some R&D tax relief claims has not met their own standards and commitments.

It has said that they are taking steps to improve their training and assurance processes.

This news has been very much welcomed, however, the Chartered Institute of Taxation (CIOT) is concerned about HMRC’s ‘volume approach’ to managing R&D enquiries, as it means legitimate claims will continue to be rejected and the underlying objectives of investment in innovation and economic growth will be undermined as businesses are put off claiming the relief they’re entitled to.

HMRC has responded to a letter the CIOT wrote in July, that shared with HMRC its members’ concerns about how the tax authority is conducting R&D enquiries into claims by SMEs. The exchange of letters focuses on the ‘volume compliance’ approach adopted by HMRC since the latter part of 2022.

Ellen Milner, CIOT Director of Public Policy, said, “We welcome HMRC’s response to our letter, which acknowledges the issues that we raised and sets out how HMRC are going to address them. We also welcome the open dialogue that we have had with HMRC about compliance.

“We recognise that the amount of abuse of R&D relief is a significant problem, and HMRC are right to be prioritising action to tackle it. We support them in their efforts to do this and are committed to our own role in upholding professional standards in the tax service industry. But HMRC’s actions must lead by example and be in accordance with their professional standards and Charter commitments, as well as, of course, the law.

“We remain of the view that the current volume compliance approach does not work well for R&D tax relief claims, due to the complex nature of the relief and the technical consideration required in ascertaining whether or not there has been a qualifying R&D project.

“We have had a lot of positive feedback from businesses and advisers since publishing our letter, demonstrating that the problems we highlighted are widely experienced and the views we expressed are widely held.”

To find out more about contracting please contact Jaime on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com.