HMRC gets tough over R&D tax relief
HM Revenue and Customs (HMRC) is toughening its stance on claims for research and development tax relief, according to accountants and business advisers Grant Thornton.
According to the firm, HMRC may change its interpretation of the rules that provide for ‘tax super-deductions’ on costs incurred for research and development (R&D) activity.
The new interpretation may prohibit claims for any R&D costs that relate to the production of products and services for supply to customers such as the cost of producing prototypes that are sold rather than scrapped.
Costs relating to R&D testing and design are not prohibited. However, a narrower interpretation would also prohibit claims for any costs where there is the prospect of producing goods or services for supply to customers.
Samantha Vanags, technology and R&D tax partner at Grant Thornton said: “In the course of making claims for our clients, we are experiencing a much higher volume of tougher challenges from HMRC in respect to these new interpretations, which lead us to believe that they will soon be made official.
“These new interpretations will make life particularly difficult for the many leading-edge engineering and technology companies, which are already adversely affected by current economic conditions.
She added: “At a time when the UK’s income from other sectors such as financial services has declined, measures like this, which will reduce the effect of the fiscal stimulus on businesses, seem very short-sighted.”
Ms Vanags said that HMRC was also becoming more aggressive in other areas of R&D tax relief and was now challenging the 100% claim that firms can make for staff time.
“The basis of HMRC’s dispute seems to be that it considers that no member of staff can spend all of their time on R&D activities as there will always be an element of non-R&D time in an individual’s day-to-day activities and employment relationship,” she said.
“This isn’t a view that it has put forward in the past. Alongside this, we are also seeing narrower interpretations of the rules on ownership of intellectual property and subcontracting conditions.”
