ATT warns of impact of R&D tax relief plan on small companies

The ATT made the call for a rethink in its response¹ to a Treasury report on R&D tax reliefs. This report covers a number of reforms to R&D tax relief announced at the Autumn Budget 2021, including proposals intended to target abuse of the reliefs and improve compliance. One of these proposals is that ‘companies will need to inform HMRC, in advance, that they plan to make a claim for R&D tax relief’.

The ATT says it shares the Government’s general concerns over abuse of the R&D relief schemes and strongly supports efforts to crack down on such abuse of the tax system and improve compliance.

Michael Steed, Co-chair of ATT’s Technical Steering Group, said:

“We are concerned that the proposed requirement for companies to notify HMRC in advance that they plan to make a claim may affect the ability of companies undertaking genuine R&D to access the relief to which they are entitled. 

“In particular, we are concerned that the smallest and newest-formed companies, which are often most in need of the support offered by R&D relief, may not be able to plan their expenditure far enough in advance to make an advanced notification.”

As set out in the ATT’s response, small companies and start-ups often lack dedicated in-house tax or R&D expertise, and are more likely than established businesses to focus on shorter term goals. As a result, they might not appreciate the opportunity for R&D relief sufficiently far in advance to give the required pre-claim notification. A requirement for a detailed advance notification could also affect those companies whose R&D activities are carried out in an agile fashion, being changed or shaped by emerging issues – for example in response to the coronavirus pandemic. 

Michael Steed said:

“It does not seem at all fair that a company carrying out genuine R&D activity is excluded from relief solely on the grounds of whether they are practically able to notify HMRC by a certain time.

“Preventing such businesses from accessing relief to which they would otherwise be entitled could affect their ability to grow and carry out new research.

“We encourage the Government to change the emphasis of their plans. In our view, focusing on the minority of advisers behind incorrect or spurious R & D claims would be more effective than introducing new measures which prevent genuine claimants from obtaining the relief.”

Notes for editors

1. The ATT’s submission can be found here.
2. R&D reliefs provide support for companies working on projects which aim to make an advance in science and technology. There are two R&D relief schemes – one for Small and Medium-sized Entities (SMEs) and another for large companies (the R&D Expenditure Credit or ‘RDEC’ scheme). Where a company meets certain requirements they can claim additional relief on their R&D expenses in the form of an enhanced deduction (under the SME scheme) or a tax credit (under the RDEC scheme).  Where a company in the SME scheme makes a loss, they can surrender that loss for a payable tax credit from HMRC.  You can find more on the schemes on GOV.UK
3. As set out in the R&D Tax Reliefs Report in 2021: “As set out at Autumn Budget 2021, UK companies claimed tax relief on £47.5 billion of R&D expenditure in 2019, but the ONS estimates that businesses only carried out £25.9 billion of privately financed R&D in the UK. While this gap is partly explained by companies being able to claim for activity taking place overseas, this does not account for the full difference.”