HMRC Publish New Research & Development (R&D) Guide

Research & Development (R&D) remains a highly beneficial area for those companies carrying out qualifying work.  Historically it has been an underused relief with HMRC and Government seeking ways to highlight the availability of the relief.

As part of this on-going initiative, HMRC have published a document on R&D designed to ‘Make R&D easier for small companies’.  It does contain some useful summaries and case studies for those who are unfamiliar with the relief.

As a reminder, R&D tax relief is available to companies that are developing a product through an advance in science or technology by overcoming scientific or technological uncertainty.

For small to medium sized companies (SMEs), the relief takes two forms:

  • Firstly, enhanced R&D tax relief – for every £1 of qualifying costs spent on R&D, the company receives a deduction in calculating their taxable profit for corporation tax purposes of £2.30.
  • Secondly, for loss making companies up to 33% of the qualifying cost can be available as a tax refund.

The Research and Development Expenditure Credit (RDEC) scheme which pays a taxable credit of 11% of qualifying expenditure may also be relevant to SMEs, for example where they are carrying out work for larger companies.

HMRC’s new guide goes through some of the factors to consider in determining whether projects would qualify for R&D relief, but does highlight that the relief is not just for ‘white coat’ scientific research, but also for other “development work in design and engineering that involves overcoming difficult technological problems”.

It also includes case studies on certain areas, such as food, ICT and construction.  The food case study for example notes that, “Creating an innovative chilled food container that provides a substantially longer shelf life than currently available, would […] qualify. The scientific or technological uncertainties to be addressed are in the interactions between the food, gas content and container to keep the food fresh for longer. By contrast, the work in dealing with authorities to comply with extended use-by date regulation would not qualify.”

Eaves and Co has dealt with a number of R&D claims and have a proven track record in completing successful claims and can offer assistance in all aspects of the claim process.  If you would like to discuss how we can help, please get in touch.

Employment Related Securities – HMRC Withdraw Late Filing Penalty

We were recently successful in challenging HMRC penalties for late filing in relation to annual Employment Related Securities (ERS) reporting.  In the case in question, a company had submitted an online ERS return the previous year relating to a one-off share event, being an acquisition of shares by an employee.

Quite reasonably, the company did not appreciate that HMRC expected an ERS return to be submitted the following year, bearing in mind there was no share scheme and no events had taken place.  Without providing the company with a reminder that a return would be due, HMRC proceeded to raise late filing penalties when the return was not submitted.

HMRC argued that a nil return was due for all subsequent years regardless of whether there were any share events.  The manner of the penalty was concerning in that it provided no details of which legislative provisions it was based on, even after the penalty had been appealed.

According to HMRC, annual returns are to be submitted on or before 6th July each year and returns, including nil returns, “must be submitted for any and all schemes that have been registered on the Employment Related Securities online service.”

They argued that, “A return is required even if you have:

  • Had no transactions
  • Have made an appeal/Had an appeal allowed
  • Rely on a third party to submit the return
  • Ceased the scheme by entering a final event date
  • Registered the scheme in error
  • Registered a duplicate scheme
  • Did not receive a reminder
  • Have changed accountant/agent/staff

Once a scheme or arrangement has been registered on the service and remains live, you have a continuing annual obligation to submit an electronic end of year return by the deadline.”

The actual legislation states that a return is required for each tax year falling in the personʼs “reportable event period”.  A personʼs “reportable event period” is defined under s.421JA(3) as:

  • beginning when the first reportable event occurs in relation to which the person is a responsible person, and
  • ending when the person will no longer be a responsible person in relation to reportable events.

Clearly the legislation is somewhat unclear, however there was a strong argument that where no future reportable events were envisaged they would no longer be within a reportable event period.

We were able to get HMRC to withdraw the penalties on the basis that there was no employee share scheme, and therefore no ongoing obligation under the actual legislation to file returns.  One suspects HMRC will not be changing their policy in this regard, but it does highlight the importance of challenging them where they apply policies that go further than the actual law.