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Is the R&D Tax Credit system too complex?

A new process intended to make it easier for small firms to apply for R&D Tax Credits is too complex, a tax specialist has warned.

In November the UK tax authority introduced a new initiative to encourage smaller companies to claim for research and development tax relief; but it is likely to disappoint them, according to tax credit specialists Jumpstart.

The new Advanced Assurance scheme was introduced last month for companies with less than £2 million turnover and fewer than 50 employees. If companies qualify, the first three years of claims are to be allowed without further enquiries.

But Richard Edwards, Director at Jumpstart, has raised questions about whether this system will actually make applying any easier for small firms.

Edwards said: 

"While we welcome any attempts to make the R&D Tax Credit application process easier, the details required from SMEs under Advanced Assurance remain potentially complex and time-costly. It certainly is not the light-touch route that many in the sector expected."

Advanced Assurance requires applicants to submit a detailed overview of:

  • The proposed R&D activity the company plans to undertake;
  • The scientific or technological advance being sought;
  • The scientific or technological uncertainties involved;
  • The plan for dealing with those uncertainties;
  • The reasons why the knowledge being sought is not readily deducible by a competent professional;
  • A breakdown of the R&D costs.
"These are not unreasonable questions, but companies often need help to understand them, apply them to their business and draft a comprehensive response," said Edwards. "SMEs are … not familiar with HMRC's definition, or the 500 pages of guidance HMRC has produced. A few help buttons on an online form is no substitute for detailed guidance."

HMRC has said that SMEs will have access to an HMRC specialist to help them comply but Jumpstart is questioning how the UK's tax body will find time for "hand-holding".

Edwards said: 

"We have no wish to cast doubts on genuine efforts to improve the application process. But the fact is that, under Advance Assurance, HMRC is requiring companies to have a good understanding of its jargon before they engage with them. It would have been more helpful to move this assistance even closer to SMEs by allowing them to call in to discuss what the highly generic guidance means in practice."

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