A company undertaking an innovative research and development project may be able to take advantage of significant tax breaks, but the availability of relief can attract fraudsters.
Tax relief and rogue advice
R&D tax relief comes via two schemes. The new merged R&D scheme offers a 20% above-the-line taxable credit, and the enhanced R&D intensive support scheme (ERIS), available to loss-making, R&D-intensive, small and medium-sized enterprises, provides an enhanced deduction of 86%, and a potential repayable tax credit. Financially, the stakes can be high and unscrupulous so-called advisers know this.
A typical fraud sees rogue firms posing as specialist advisers, submitting R&D claims for their clients, and creaming off the proceeds while leaving behind a claim that may later fail HMRC scrutiny. Taxpayer business Beer Express Ltd found this to its cost at the First-tier Tax Tribunal.
The company had appointed an external firm that suggested its inventory forecasting software and new lager development projects qualified for tax incentives. In 2023, HMRC rejected the claim in full and asked for repayment after the advisers disappeared.
Navigating the rules
Broadly speaking, to qualify as R&D for tax purposes, a project must involve the resolution of uncertainty to achieve an advance in science or technology, and fit within government guidelines. Further specific requirements apply, such as the need for a project to be overseen by a competent professional.
The Tribunal decided that Beer Express failed to qualify because the company owner did not have in-depth technical knowledge or direct responsibility for the design, creation, planning, and implementation of the projects.
Eligibility requirements for R&D tax relief are complex. Please don’t hesitate to get in touch for further advice.
