The CIOT has followed up previous concerns with the way HMRC have been handling R&D tax relief claims, writing again to question HMRC’s volume compliance approach to processing claims.
Legitimate R&D claims are still being rejected, says the CIOT, and ‘the underlying policy objectives of R&D tax relief, to encourage investment in innovation and economic growth, continue to be undermined as businesses are put off claiming relief to which they are entitled’.
Aggressive positions continue to be taken by HMRC’s compliance team, with the CIOT reporting examples of ‘strong caseworker bias towards rejecting claims and disregarding the testimony of competent professionals, despite those caseworkers having little or no specialism in the areas under consideration’. The position for genuine claimants is made all the more difficult where HMRC refuse to engage to discuss their claims.
Interestingly, the CIOT reports examples from experienced R&D practitioners who have had some claims handled by HMRC’s Individuals and Small-Business Compliance (ISBC) team and others by the Wealthy and Mid-Sized Business Compliance (WMBC) team. In nearly all cases the WMBC claims were agreed (with some changes to quantum) but the majority of ISBC claims were rejected in full.
The institute urges a change of approach from HMRC, stepping back from the volume compliance approach until caseworkers are ‘properly trained’ and have the appropriate level of understanding of R&D. ‘In our view this could indicate a predisposition/bias in the ISBC teams to reject claims’, says the CIOT.
Ellen Milner, CIOT’s director of public policy, said: ‘In our view, the balance between tackling the problems of error and fraud and the impact on compliant claimants is currently tilted too far towards the former. Genuine claimants and compliant taxpayers should not suffer because of the bad behaviour of others.’
The CIOT raises several key issues:
The use of HMRC’s power to correct corporation tax returns (in FA 1998 Sch 18 para 16) to remove R&D claims appears to be a broadening of the understood scope of that power which is to correct ‘obvious errors’. ‘It does not seem right to us that HMRC can circumvent the need for an enquiry by simply denying the claim for R&D tax relief outright’, says the CIOT, pointing to guidance in HMRC’s Company Taxation Manual at CTM93330 which confirms this interpretation.
HMRC’s debt management team had in some cases been engaged early on in the process and before potential appeal options had been exhausted. HMRC has confirmed that this resulted from systems errors which have since been corrected, and agreed that debt management should not be involved at this point.
Establishing a process to move the more nuanced claims away from the volume teams would greatly improve the position, as would the addition of more experienced colleagues to the existing teams who could then take ownership of specific cases.
The CIOT has followed up previous concerns with the way HMRC have been handling R&D tax relief claims, writing again to question HMRC’s volume compliance approach to processing claims.
Legitimate R&D claims are still being rejected, says the CIOT, and ‘the underlying policy objectives of R&D tax relief, to encourage investment in innovation and economic growth, continue to be undermined as businesses are put off claiming relief to which they are entitled’.
Aggressive positions continue to be taken by HMRC’s compliance team, with the CIOT reporting examples of ‘strong caseworker bias towards rejecting claims and disregarding the testimony of competent professionals, despite those caseworkers having little or no specialism in the areas under consideration’. The position for genuine claimants is made all the more difficult where HMRC refuse to engage to discuss their claims.
Interestingly, the CIOT reports examples from experienced R&D practitioners who have had some claims handled by HMRC’s Individuals and Small-Business Compliance (ISBC) team and others by the Wealthy and Mid-Sized Business Compliance (WMBC) team. In nearly all cases the WMBC claims were agreed (with some changes to quantum) but the majority of ISBC claims were rejected in full.
The institute urges a change of approach from HMRC, stepping back from the volume compliance approach until caseworkers are ‘properly trained’ and have the appropriate level of understanding of R&D. ‘In our view this could indicate a predisposition/bias in the ISBC teams to reject claims’, says the CIOT.
Ellen Milner, CIOT’s director of public policy, said: ‘In our view, the balance between tackling the problems of error and fraud and the impact on compliant claimants is currently tilted too far towards the former. Genuine claimants and compliant taxpayers should not suffer because of the bad behaviour of others.’
The CIOT raises several key issues:
The use of HMRC’s power to correct corporation tax returns (in FA 1998 Sch 18 para 16) to remove R&D claims appears to be a broadening of the understood scope of that power which is to correct ‘obvious errors’. ‘It does not seem right to us that HMRC can circumvent the need for an enquiry by simply denying the claim for R&D tax relief outright’, says the CIOT, pointing to guidance in HMRC’s Company Taxation Manual at CTM93330 which confirms this interpretation.
HMRC’s debt management team had in some cases been engaged early on in the process and before potential appeal options had been exhausted. HMRC has confirmed that this resulted from systems errors which have since been corrected, and agreed that debt management should not be involved at this point.
Establishing a process to move the more nuanced claims away from the volume teams would greatly improve the position, as would the addition of more experienced colleagues to the existing teams who could then take ownership of specific cases.
