Caution urged over small company R&D relief review

In today’s Spring Statement the Chancellor announced a number of reforms to R&D tax reliefs, with a view to stimulating innovation in the UK. These included the proposal that the Government would consider increasing the generosity of the RDEC scheme which provides relief to larger companies, while also considering what more can be done to tackle abuse of the separate R&D tax relief scheme which provides relief to small and medium sized companies (the ‘SME scheme’).¹

Jon Stride, Co-chair of ATT’s Technical Steering Group, said:

“We share the Government’s concerns over abuse of the R&D relief schemes and strongly support efforts to crack down on such behaviour. However, care needs to be taken that these efforts do not prevent genuine claimants from accessing the relief to which they are entitled.”

The ATT has previously warned that proposed reforms to the SME R&D scheme could have consequences beyond the abuse they seem to target.  Only last month² the ATT raised concerns that a proposed requirement for companies to notify HMRC in advance that they plan to make a claim could prevent the smallest and newest-formed companies from accessing relief.

Jon Stride continued:

“We believe that the best approach to tackle abuse of R&D relief is to do so head on. Targeting 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 or making it harder for them to access relief to which they are entitled.

“It is particularly unfair if tax relief for R&D carried out by large companies was increased, while smaller companies were given more hoops to jump through to access relief.

“Given the current political and economic uncertainty both in the UK and the wider world, smaller companies which engage in R&D are likely more in need of support than ever."

Notes for editors

1. 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
2. ATT warns of impact of R&D tax relief plan on small companies, 16 February 2022 – ‘The Association of Taxation Technicians (ATT) is calling on the Government to rethink its plan to require companies to notify HMRC in advance that they intended to claim R&D tax reliefs, because the ATT fears it risks denying tax relief to the very smallest and newest companies that need this tax relief the most.’