As businesses continue to innovate and drive economic growth, the Government has been closely monitoring and regulating research and development (R&D) activities to ensure compliance with tax legislation ...
HMRC's R&D compliance approach is based on risk assessment, quality control, and fraud prevention!
HMRC has been actively briefing MPs on their approach to R&D compliance and firstly, it's important to understand what HMRC considers as R&D for tax purposes. According to their guidelines, R&D must involve a project that seeks to achieve an advance in science and technology, and must involve activities that go beyond routine data collection or testing.
"HMRC has strict criteria for determining if a project qualifies as R&D!"
During the briefing, MPs were informed that HMRC's approach to R&D compliance is based on risk assessment. This means that businesses that are deemed to have a higher risk of non-compliance will be subject to more scrutiny and may be selected for a compliance check. This could include businesses with a history of non-compliance, those with complex R&D claims, or those with a high volume of R&D claims.
MPs were also made aware of HMRC's focus on the quality of R&D claims. In order for a project to qualify for R&D tax relief, it must meet the criteria set out by HMRC. This includes being able to demonstrate that the project meets the definition of R&D, that the costs claimed are eligible, and that the project has not already received public funding.
HMRC may request additional information or evidence to support a claim, and businesses must be able to provide this in a timely and accurate manner!
Another key aspect of HMRC's R&D compliance approach is its focus on identifying and tackling fraudulent claims. While the majority of businesses are honest in their R&D claims, there have been cases of fraudulent claims being made.
This not only impacts the government's tax revenue, but also undermines the integrity of the R&D tax relief scheme. As such, HMRC has implemented measures to identify and investigate potential fraudulent claims, and businesses found to be making false claims may face penalties or even criminal prosecution.
MPs were also briefed on the importance of record keeping when it comes to R&D claims. In order to support their claims, businesses must maintain accurate and detailed records of their R&D activities and associated costs. This includes documentation such as project plans, technical reports, and timesheets. In the event of a compliance check, businesses must be able to provide these records to HMRC, so it's crucial to keep them organised and easily accessible.
"HMRC's R&D compliance approach is based on risk assessment, quality control, and fraud prevention!"
As businesses continue to innovate and invest in R&D, it's important to stay informed and ensure compliance with HMRC's guidelines. MPs play a crucial role in understanding and communicating these guidelines to businesses, and it's important for them to stay up-to-date on any changes or updates to HMRC's approach.
By working together, businesses and the Government can ensure that the R&D tax relief scheme continues to support innovation and economic growth in the UK.
Until next time ...
ROGER EDDOWES Business Godparent
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about R&D Tax Credits and how you can ensure compliance with HMRC guidelines, it may be a great idea to call me on 01908 774320 and let's see how I can help.
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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