Author: Jen Badger

The latest Budget offers a welcome dose of stability for businesses navigating the R&D tax landscape.

The Government’s commitment to maintaining the current R&D tax relief rates for the remainder of this Parliament signals an end to constant changes and a new period of predictability.

This stability is essential for a sector that’s seen its share of upheavals, giving both advisers and businesses time to let recent reforms settle in and build confidence around claims.

A deeper dive into the R&D Tax Relief approach document

The Budget’s accompanying document, Approaches to R&D Tax Reliefs 2023-24, offers a fascinating insight into the Government’s current approach to R&D tax reliefs.

Key updates include:

• Compliance check rate drop: The compliance check rate has decreased slightly, now at 17 per cent compared to the 20 per cent reported in March. This slight reduction reflects an evolving focus on improving accuracy while relieving some of the compliance burden on businesses.
• Reduction in estimated fraud and error: There’s positive movement in estimated fraud and error rates, down to 7.8 per cent overall and 14.6 per cent for SME claims. This is a significant improvement from the 2021/22 rates, which stood at 17.6 per cent and 25.8 per cent, respectively. Clearly, the recent reforms are making an impact, and this data reinforces the Government’s drive towards a more robust system.
• HMRC staff increase in R&D compliance: With HMRC now deploying over 500 staff in R&D compliance – up from just 100 in 2020-21 – it’s evident that resources are being directed toward a more thorough review process. This should, in theory, lead to a smoother and more supportive experience for claimants who comply with the guidelines.

However, the data on compliance checks and customer satisfaction paints a different picture.

Complaints about compliance checks have risen sharply, doubling from 2.5 per cent of checks in 2022-23 to 4.4 per cent in 2023-24.

Worse still, the number of complaints upheld has more than tripled, from 1.5 per cent to 4.9 per cent, suggesting a challenging experience for many claimants.

These figures reflect the need for HMRC to not only maintain rigorous checks but also improve the claimant experience to ensure just outcomes and uphold confidence in the system.

Potential for advance clearances

Another promising development in the Budget is the Government’s consideration of expanding advance clearances, with a consultation expected in Spring 2025.

Advance clearances, if properly implemented, could bring much-needed assurance to businesses undertaking R&D activities by providing a clearer understanding of claim eligibility before significant investments are made.

While details are still to come, an expansion in this area could help businesses and advisers alike make better-informed decisions without fear of a costly compliance setback later.

Further support for tech and start-ups

The Budget includes other notable measures that will benefit tech companies and start-ups, ensuring that the R&D sector remains competitive and attractive for innovation.

The temporary retention of the Business Asset Disposal Relief (BADR) scheme, albeit with a higher rate of tax from April 2025 – and increased R&D funding are key highlights of Ms Reeves’s speech, providing stability in areas critical to business growth and capital gains.

However, an increase in employer NICs could pose challenges for innovative companies, impacting cash flow and restricting their ability to increase wages to attract the best talent.

Fortunately, the raised Employment Allowance (EA) should provide some relief, but only for smaller companies and start-ups.

A promising path forward

The certainty and support set out in the latest Budget offer a new landscape for R&D tax relief claims and should restore confidence in accounts to deliver an effective service to businesses who are crying out for support.

With a firm foundation under current rates, an enhanced compliance approach, and potential for advance clearances, we’re seeing the Government’s intention to balance rigour with support.

This period of stability should allow advisers and businesses to focus on innovation and growth, confident that the rules around R&D tax relief will not undergo sudden shifts.

As these changes take shape, it’s more important than ever for businesses to proactively manage their R&D tax claims with expert guidance.

For accountancy firms, this means equipping their team with the latest collaborative technology and additional support from outside experts, both of which the WhisperClaims platform offers.

The new landscape presents an opportunity for all of us in the field to adjust to these changes, refine our processes, and continue supporting the innovation that drives the UK forward.

If you would like to see a demo of our innovative software & find out more about our Advice Line support, why not get in touch or book a demo?