The recent statistics issued by HM Revenue and Customs (HMRC) have shown how R&D tax relief claims have been impacted by recent changes and it seems like first-time claimants may have been scared off.
If the drop in first-time claims means that error and fraud decreases, then the changes are having the desired effect.
However, increased scrutiny might be making eligible companies too fearful to apply for R&D tax relief, which raises the question of how innovative businesses can be supported in making that initial claim.
Why might first-time R&D tax relief claims be falling?
It is no secret that R&D tax relief claims have become more complicated as additional layers of administrative barriers have been put in place to deter unscrupulous claimants.
There is a risk that legitimate businesses and accountancy firms may be put off by the increased complexity, preferring instead to forgo the potential benefit if they feel it would be too arduous a task to achieve it.
This could explain why the number of first-time claims has dropped to 3,765, where in 2019 it was 19,720.
It is also possible that some prospective claims have been rendered ineligible due to a mishandling of the Advanced Notification Form (ANF).
The ANF must be submitted within six months of the year-end for the period in which R&D took place.
Without a valid ANF, no R&D tax relief claim can be submitted.
The spectre of the Mandatory Random Enquiry Programme (MREP) also casts a shadow over R&D tax relief claims.
Where once it was possible to have confidence that claims would be accepted by HMRC without issue, the MREP has removed any degree of certainty.
Enquiries are as much a part of R&D tax relief claims as the cost breakdowns and the technical narrative and should be treated as such.
This patchwork of compliance measures seems intimidating to those who have never claimed.
This is by design, but we want to help support new claimants with their eligible R&D tax relief claims so that legitimate work is not underfunded by a fear of compliance measures.
How can first-time R&D tax relief claimants be supported?
Taking the time to help innovative businesses understand the requirements of R&D tax relief claims can be a helpful way of encouraging the initial claim to be submitted.
It is important to have a detailed discussion with a prospective claimant to ensure that the work they do counts as eligible R&D.
If it becomes apparent that an R&D tax relief claim would be beneficial, then it is vital that the ANF is submitted before the deadline.
R&D tax relief claims cover the previous two accounting periods, so if the deadline is missed, it might be possible to make a claim the following year.
However, once too much time has passed since the R&D work was conducted, it will no longer be possible to make an R&D tax relief claim.
To avoid innovative companies missing out, it is best to have conversations early so that deadlines do not get missed and valid claims can be submitted.
We work to expand the reach of R&D tax relief to ensure that all innovative businesses get the financial boost they deserve.
Speak to our team today to find out more about how you can encourage a first-time claimant to submit their R&D tax relief claim.
