R&D regulation would benefit manufacturers
Since it was introduced by the UK Government in 2000, Research & Development (R&D) tax relief has proven to be an excellent measure, driving forward competitiveness in many British businesses, including a significant number of manufacturing companies which are ideally placed to secure this rebate. The scheme has really benefitted the sector by offering tax breaks to manufacturers, giving them a strong financial incentive to put greater investment into innovation.
In key manufacturing areas, such as the Midlands, North West of England and Yorkshire, the sector accounts for nearly a third of all R&D claims, underlining its importance in promoting competitiveness and growth within many businesses. With Brexit fast-approaching and the UK Government looking to ensure British manufacturing businesses continue to be world-leading, it is putting even more resources towards R&D tax relief. While this would be welcomed by the UK’s manufacturing community, I believe it is also time for higher standards to be implemented to give companies using specialist R&D tax relief advisers an assurance they are getting qualified and professional advice.
Since the scheme’s introduction, several dedicated R&D tax relief advisory firms have emerged across the UK, including Jumpstart, to help businesses identify whether they qualify for relief. Those which do are then given support in preparing their claims for relief on certain categories of innovation expenditure. Unlike other business advisory professionals including accountants, lawyers and pensions specialists, R&D tax relief firms have not been subject to any form of regulation or governance.
While it may seem odd for me to call for greater scrutiny of a sector in which we operate, I believe it is time for a benchmark to be set to ensure all consultants operate with high standards and this will require some form of regulation.
There are many highly knowledgeable R&D tax relief advisors in the market providing invaluable guidance for clients and helping them recoup significant tax breaks for their investment in innovation. There are, however, also a number of mushroom companies with low professional standards. Not only do they threaten the reputation of our sector but they can also have a detrimental impact on the businesses they advise.
The Government has recently bolstered its support towards R&D, announcing a further £2.3bn investment for it in last November’s Autumn Budget. It has also put forward extra resources to tackle tax avoidance, evasion and non-compliance. This tightening of scrutiny means that companies now face a much greater risk of being subjected to a more in depth HMRC investigation and potentially significant tax-geared penalties if it is found that they have been party to the submission of erroneous or unverified R&D tax relief claims.
Poor advice from a so-called R&D ‘specialist’ can lead to a company being subjected to a review of their tax records from the previous six years which can be extended if HMRC inspectors believe deliberately misleading transactions have been submitted. Those which breach the rules not only face having an existing claim fully retracted but also put at risk their eligibility on any future claims.
Last year the Leeds-based company Brewology, a specialist design and manufacturing supplier to the brewing industry, was placed in administration following issues with HMRC over disputed R&D tax credits and a demand for a trading bond of over £200k. While the company was saved from administration last March when it was relaunched as PD Brew, it provides an example of how a mishandled claim for R&D tax relief can backfire on a business.
My view is that self-regulation, with the creation of a voluntary quality standards society, would be a viable first step forward. This would require credible and reputable R&D tax relief advisory firms to come together to agree a set of standards and develop a certification scheme, ideally modelled along the lines of ISO accreditation. Businesses could then be reassured on the quality of advice by working with an accredited firm or individual.
A workable form of regulation is in the long term interest of firms in our sector and it will certainly benefit UK manufacturers as well as the wider business community. Not only will it ensure companies are accessing quality advice, it will also protect the integrity of the R&D tax credit scheme and increase the prospect of its continued funding by the UK Government, encouraging further innovation in British manufacturing and across other key sectors at the heart of our economy.
Scott Henderson, Managing Director of R&D tax relief specialist Jumpstart