Delays to R & D tax credit claims

Richard Coombs, Tax Partner at Bates Weston reports that HMRC are currently taking up to 90 days to process R & D tax credit claims compared to the expected 28 day response.

“Clients will need to be aware of the impact on cash flow if they are expecting a refund. The sooner they can furnish us with the information we require to make their claim, the better. Although HMRC is taking steps to address the situation, we are not convinced that they will be back on track by the 30 September.”

The Chartered Institute of Taxation (CIOT) wrote to HMRC at the beginning of August expressing concern at the significant delays in processing times for R & D tax credits and R & D Expenditure Credits (RDEC). HMRC responded by acknowledging the delays. It attributed them partly to staff losses but also to the popularity of the scheme and the high number of claims it is receiving.

HMRC advises that they will be increasing staff numbers and aims to be achieving a 28 day turnaround time on R & D tax credits claims by 30 September 2019.

“The CIOT welcomes HMRC’s ambition, as do we, but the numbers of staff required, their training, handling the backlog and a steady rise in the number of claims, leads us to be sceptical.”

Summary of the relief

R & D tax relief allows companies that carry out qualifying R & D, related to their trade to claim an extra corporation tax deduction for certain qualifying expenditure. HMRC define R & D as having taken place when “a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology”

In essence  the relief works by “super-sizing” any R&D spend for the purposes of calculating a company’s corporation tax liability.  Any qualifying spend is more than doubled, to 230% of the original, and then the company’s corporation tax liability is recalculated and reduced accordingly. At current corporation tax rates of 19% the benefit is an additional 24.7% of the original spend (i.e. 130% x 19%).  If the company is loss-making then they can still benefit, by surrendering the R&D loss for a cash payment from HMRC.  The cash payment is equal to 14.5% of the R&D loss, and so equates to 33.35% of the original spend (i.e. 230% x 14.5%).  As you can see, the sums can be considerable.

You can also go back to any open years (usually two) and amend historic returns in order to claim further relief.

If you need help with your R & D claims, please do get in touch.