On the 24th of September, HMRC held its bi-annual R&D Consultative Committee meeting. The meeting was an opportunity for R&D advisers/agents from all across the UK to come together to hear from heads of each of the departments at HMRC that support the R&D tax credit & Patent Box schemes.
We’ve outlined a brief recap of some of the key points that were discussed in the meeting. More detailed meeting minutes, along with the slides that were used by each of the speakers will be available on the gov.uk website over the coming weeks.
HMRC are still reviewing the 87 submissions that were made in response to the “Preventing Abuse of the R&D Tax Relief for SMEs” consultation that was open from March 2019 – May 2019. This consultation was set up following the announcement in the 2018 Budget that the amount of payable tax credit that a qualifying loss-making business can receive through the relief in any one accounting period would be capped.
At the time it was said that the cap would be three times the company’s total PAYE and NICs liability for that year and would be implemented from April 2020. As a result of the consultation, it has been suggested that amendments will be made to this change in the legislation and these will be announced when the next Budget is released.
An RDEC Advance Clearance pilot program has been running since earlier this year with 12 companies from different industries (i.e. Pharmaceuticals, Manufacturing, Financial Services). A report on the pilot program and assessment of its future is set to be released in May 2020.
The program provides claimants with clearance over 3 years (the claim year and 2 future periods). It was noted that through this pilot, interesting issues have been raised which will hopefully result in more formal guidance for all claimants in the future. For example, within the pilot, there has been a complicated EPW arrangement and a project that has been deemed non-qualifying.
Wealthy mid-sized business compliance – insight, growth and risk
Currently, the WMBC processes all R&D claims. This is a role that it has had for a number of years. However, as of 30 September, the processing of all R&D claims will be the responsibility of Business Tax & Customs. Business Tax & Customs currently processes all CT returns, amendments, and repayments and maintains the CT database COTAX.
This team within HMRC has a greater volume of staff than the WMBC, therefore, it is hoped that it will be able to better handle future growth in the R&D Tax scheme. The WMBC will still be on hand to answer any technical queries.
By Monday 30 September, when the WMBC hands over the processing of all R&D claims to BT&C, it is anticipated that 99% of all claims will be bought up to date. This means that the backlog that we have been experiencing for the last 9 months should be resolved by next week. As of Monday 30 September, 28 day processing times should be the norm for both SME and RDEC claims.
It was also reported that in March 2019, HMRC saw a 160% increase in the number of SME claims that were filed. In the same month in 2018 only, around 3000 claims were submitted. In 2019 that number grew to around 8000. HMRC is expecting a similar increase in December of this year
There was a short discussion about professional qualifications and the standards that must be upheld by an Agent (adviser).
Following some concerns that some Agents are not adhering to the professional standards, it was noted that CIOT (Chartered Institute of Taxation) and ATT (Association of Taxation Technicians) are in the process of preparing some guidance for R&D Agents as to how professional standards such as the PCRT (Professional Conduct in Relation to Taxation) and R&D sit together.
Should you wish to learn more about the HRMC Agent Standards please refer to this link
Large business update
The Large Business team has been assisting WMBC to try and clear the backlog of claims. As of today, only 31 claims are yet to be processed. Once they have been processed there should be no more outstanding (i.e. those outside the traditional 28 days processing time) RDEC claims in the system.
As noted above, as of 30 September 2019, HMRC intends to process RDEC and SME claims within 28 days. It should, however, be noted that payments are made following processing, therefore, claimants are told not to expect payment within this time frame. One reason for this delay is the randomised security assessments that must be made by external teams within HMRC before a repayment is made.
HMRC is expecting an influx of RDEC claims in the last half of this financial year as, since April 2019, only 490 claims have been submitted (approx. £300Million). Compare this to the total number of claims filed in 2018/2019 which was 2,500 (at approx. £2.4Billion), it is easy to see why HMRC is expecting an influx in December 2019 and March 2020.
- Digital Forms – the number of claims received via this electronic form is very low (in the 100s, not 1000s). HMRC has found that the form has been used by a number of unrepresented claimants
- CDIO update – We were reminded that it is only when engaged by an R&D Specialist that CDIO will become involved in an enquiry. CDIO’s role in an enquiry is to inform the R&D Specialist, not to make the decision. At the end of the day, the decision is made by the R&D Specialist
Dispersed/Displaced R&D and the interaction with s104W: This will help us to better understand the subcontractor relationship and who is the rightful claimant when looking at a group.
The two-part SME test – there is a flow chart that can be found at CIRD 92850 that shows how this test operates. This flow chart was discussed in the meeting following a number of Agents/Claimants recently misinterpreting the guidelines. The ability for Corporate Partners to claim R&D Tax Credits vicariously through the Partnership as a result of the interaction with s46 CTA 2009 and s104A(1)
A brief discussion was had following a question regarding the upcoming changes to the Employer Allowance which allows certain businesses to claim a £3000 reduction in the amount of Class I National Insurance Contributions it has made.
The question related to whether this reduction would be considered Notified State Aid, as if it did this would negatively impact R&D claimants. A definitive answer was not reached in the meeting, however, it was suggested that it would not be considered Notified State Aid. Agents/Claimants were however reminded not to include the proportion of the £3000 that relates to the R&D staff wages
Other points raised
Finally, there was some discussion around recent enquiry questions. A number of agents/advisers were concerned that a standard template was being sent out to claimants asking them to re-write what was already included in the narrative (i.e. questions like “What was the advance in science and technology?”).
HMRC representatives expressed their concerns over this and said that all specialists have been told to provide tailored questions when enquiring about a claim that has been submitted. The only time that Specialists should be using standard templated questions is where it is not clear in the narrative ‘why a particular advance was within an area of uncertainty for a competent professional in the industry’.