The impact of HMRC R&D tax credit payout delay
If your business has made an R&D tax credit claim recently or you are thinking of making one, you need to be aware that there have been substantial delays for companies receiving their payouts. Here, we assess what this could mean to your company.
What’s causing the R&D tax credit payout delay?
HMRC announced that it would be stopping payments for some R&D tax credit claims whilst it conducts a project to reduce fraudulent claims. This means there are likely to be significant delays to processing current and new claims and an increase in the time taken to payout the claim. According to the taxman, fraudulent claims increased to 4.9 per cent of all claims by smaller businesses in the year to April 2022, costing an estimated £469m. This represented a 40% increase in fraudulent claims over the previous year (£336m).
What is HMRC doing to help this issue?
HMRC have hired additional resources to work on investigating fraudulent claims which the revenue has suggested may be ‘incorrect, inflated or fraudulent.’ It is not known how many claimants are affected though HMRC says most claims are unaffected.
The system is complex which is part of the problem and if you aren’t fully conversant with the rules, it’s easy to accidentally claim costs that aren’t eligible. There are calls to simplify the two processes for making R&D tax credit claims which should cut down on fraud issues, but tax system simplification is a long process.
Should I hold off from claiming?
At On the Go, we suggest that you should still submit your R&D tax credit claim as soon as possible. You need to get your claim in the queue for processing and it’s hard to know when normal processing times will resume.
What can I claim?
R&D tax credit claims can be complex, so it’s always a good idea to work with an accountant or specialist R&D tax advisor. The Government website explains what constitutes an R&D project for the purposes of claiming tax relief. The work must be part of a specific project in science or technology and must relate to your business’ trading activities or activities you intend to start because of the R&D project. HMRC states:
‘To get R&D relief you need to explain how a project:
- looked for an advance in science and technology
- had to overcome uncertainty
- tried to overcome this uncertainty
- could not be easily worked out by a professional in the field
Your project may research or develop a new process, product or service or improve on an existing one.’
R&D tax credit types
There are two types of R&D relief depending on the size of your company. For small businesses with less than 500 staff and a turnover of under 100 million euros or a balance sheet total under 86 million euros, you can
- claim an extra 130% of qualifying costs on top of the normal 100% deduction, giving a total of 230% deduction
- claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss
For larger businesses, there’s the RDEC scheme. Small and medium-sized enterprises (SMEs) can also use the RDEC scheme if they have been subcontracted to do R&D work by a large company and have either:
- received a grant or subsidy for their R&D project
- expenditure which is more than the SME scheme aid cap
This scheme gives a credit of 13% of your company’s qualifying R&D expenditure irrespective of whether you are profit or loss-making. (This rate applies to expenditure incurred on or after 1 April 2020).
How do I get started?
Failing to claim all the R&D tax credits and other tax reliefs that you are entitled to could leave your business with a larger tax bill than necessary, eating into your shareholder profits. To avoid this issue, and for more information on which costs are eligible and how to start your claim speak to our Tax Partner, Sophie Bancroft. Call 03330 067 123 or email info@onthegoaccountants.co.uk.
