A recent report by the Financial Times revealed that some UK start-ups and SMEs are facing challenges as HM Revenue & Customs (HMRC) reject potentially legitimate claims or delay payments for R&D tax relief.
Disputes highlighted by the nine firms included within the report point to a “contradictory” approach by HMRC to the Government’s aim of making the UK a global power in high-growth sectors, including technology, sustainability and engineering.
Among solutions proposed by these firms was the potential to move operations overseas to benefit from R&D tax treatment elsewhere.
Is this the most effective approach? We’re here to help if your clients find themselves in a difficult position due to perceived compliance issues.
Examining the OECD
The Organisation for Economic Co-operation and Development (OECD) surveyed its 38 member nations in 2023 on direct government funding and tax support for business R&D (BERD) as a percentage of GDP.
The findings reveal the major challenge that R&D claimants in the UK face when they cannot find sufficient support here.
The UK tops the list, with 0.46 per cent of GDP allocated towards supporting commercial R&D – with twice as much tax relief as direct funding.
This follows a similar pattern for the other top supporters of R&D, France and Austria.
The UK also provides over twice the level of R&D support than the OECD average of 0.22 per cent.
On the face of it, the UK ought to be the last bastion of R&D tax relief with little room for movement or growth in other territories.
However, without specialist R&D support, this is far from the case.
Direct support or tax reliefs?
The UK has the most significant support for R&D in the OECD – case closed? Not exactly so.
It must also be noted that it offers only the third highest level of direct funding for business R&D, behind Hungary and South Korea.
The majority of the UK’s BERD support comes from tax credits and reliefs, meaning those who aren’t able to access and maximise R&D reliefs may struggle to access other forms of investment or financial support for costly research projects.
Despite the UK’s generous R&D allowances, some of the best in the world, success for smaller businesses hinges on the ability to access reliefs as this is what the UK relies upon for its R&D tax treatment.
This is often the only way that SMEs and startups can afford to invest meaningfully in advancements in their fields.
What happens, then, if you have a client who is struggling to access tax reliefs even with legitimate claims?
It may be time to consider bringing in specialist support to enhance the advice you can provide to clients and ensure that they benefit from all reliefs available to them.
This will generally be more cost-effective and less disruptive to clients than moving operations abroad where tax treatments for R&D are less generous – even where they are easier to access.
The key to supporting accountancy clients with R&D tax relief requirements is to provide specialist advice and ensure that claims are fully compliant and optimised for approval.
Contact us today to find out how we can help you upgrade your R&D tax relief offering.
