In a briefing for MPs, ICAEW ‘s Tax Faculty has welcomed the new government’s commitment to maintain the existing structure of the R&D tax relief regime over the next parliament. ICAEW believes that stability is key to improving certainty for businesses that are looking to invest in R&D to deliver growth.  

ICAEW also recognises and supports the need for better policing of the regime to minimise the risk of fraud, error and tax leakage. However, the faculty is concerned about HMRC’s current compliance strategy and the data used to inform it, which may be misleading. ICAEW has warned MPs that, without intervention, there is likely to be a substantial impact on investment and growth. ICAEW is hearing anecdotally that some businesses are already considering moving their R&D activity offshore. 

ICAEW’s key areas of concern are:  

• the poor use of HMRC resources due to the lack of appropriate risk assessment of claims;
• a disproportionate impact on smaller businesses;
• inadequately trained HMRC staff leading to protracted enquiries and unnecessary compliance costs for genuine claimants; 
• lack of confidence in the data and statistics that are being cited by HMRC in support of the compliance approach; and
• the international perception of the UK’s R&D regime. The regime lacks stability and is unattractive on a global stage, leading to the UK being less competitive and losing investment in innovation that would drive growth. 

Further information 

HMRC’s approach to enquiries is explored in a recent article for ICAEW’s TAXline. The article looks at a tax case in which a software company successfully appealed against HMRC’s decision to reject its claim for R&D tax relief. 

ICAEW has published the video below to help explain which activities may qualify as R&D for tax purposes.