Industry leaders are welcoming calls from the House of Lords to drop some of the proposed reforms to the R&D scheme.
As part of the Finance Bill 2022/23, which Parliament is currently discussing, companies will have to give notice of claims within six months of the end of their accounting period. This proposal aims to "tackle worrying levels of fraud in the [R&D] system".
A report from the House of Lords Finance Bill sub-committee called the requirement "uniquely onerous" on claimants, with "questionable" benefits in countering fraudulent activity.
The Chartered Insitute of Taxation (CIOT) is welcoming the recommendations from the House of Lords, stating it believes the measure would "prevent some genuine claimants from accessing the relief".
David O'Keefe, CIOT spokesman on R&D tax relief, said:
"This measure is poorly targeted because, although it will prevent some dubious claims, it will also mean that many genuine claims will fall out of time.
"It will disproportionately hurt smaller and newer companies - the kinds of companies that may only get tax advice during the year-end compliance process - and often after the six-month window for pre-notification - rather than all year round."
Questions over SME relief reforms
Not only are the proposals for advanced notification under question, but also the reduction in the relief rate for SMEs due to come into effect in April 2023.
Chancellor Jeremy Hunt set out plans to reform the SME R&D scheme in his Autumn Statement in November 2022. The changes will cut the deduction rate for SMEs from 130% to 86% and reduce the credit rate from 14.5% to 10%.
Senga Prior, chair of the Association of Taxation Technicians (ATT), said:
"We share concerns over fraud and abuse of the R&D relief schemes and strongly support efforts to crack down on such abuse of the tax system and improve compliance. However, we do not consider that the Government's recent proposals are the best way to achieve this.
"In particular, we do not consider that restricting the level of relief available to all SMEs is a proportionate way to target abuse."
Reforms set for April 2024
The Government is currently running a consultation on plans to merge the SME and the RDEC R&D schemes into a single, more simplified regime from 1 April 2024. The consultation is open until 13 March at 2 pm and is inviting comments from industry leaders and companies alike.
The ATT is calling on the Government to delay any changes this year until the consultation has finished.
Senga Prior added:
"We would therefore encourage the Government to consider pausing the reduction in the SME relief rate and the administrative reforms planned for this April until there is a clearer picture of the future of the R&D relief regime.
"To give businesses certainty and allow them to plan and budget accordingly, a clear roadmap for reform should also be published."
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