bennettbrooks Tax Director Mary Tierney
As expected, the spring statement was thankfully light on tax announcements, and we have the princely sum of 8 tax related documents published yesterday.
Having said that there are some interesting nuggets in these documents.
For me, the most interesting consultation announced on the 26th was that around Research and Development tax relief advance clearances. Anyone who has been involved in Research and Development tax credit claims over the past couple of years will be very aware that this has been a key area of focus from HMRC.
There is an interesting flow chart in the consultation showing how basic automated risk profiling checks are applied to each claim to determine if it is immediately passed to the payments team or selected for ‘compliance intervention’. The consultation also confirms that in 2023/24 17% of claims have been enquired into by HMRC.
Our experience of R&D enquiries, which thankfully has been not too extensive, is that there is limited desire from HMRC to engage with what the company has actually done, but rather a repetition of the same standard questions regardless of the explanations provided to HMRC. This simply frustrates companies who have made claims in good faith on the basis they are making technological advances, and incurs costs for the claimant company regardless of the outcome of the enquiry.
For some years companies have had the option to apply to HMRC for an advance assurance that work carried out is qualifying R&D for tax purposes, and once obtained this covers the work done for 3 years, however take up on this has been low with only 80 applications received for this in 2023/24.
The consultation is therefore looking at whether advance clearances should be revamped, and if they should be voluntary or mandatory. The Government proposes to focus voluntary assurances on growing and high-potential companies, as well as sectors set out in the Government’s Industrial Strategy. By contrast, the Government proposes that a mandatory service should apply to companies that would be specified in legislation based on factors such as sector, size and previous compliance history.
Any efforts by HMRC to assist in the clarification of what is qualifying R&D for tax purposes would be valuable, however my concern is that as we stand, there is a lack of clear guidance and indeed understanding within HMRC of the boundaries of qualifying R&D, particularly within software claims, and I would like to see this improved first before moving onto consideration of an advance assurance process and potentially higher compliance costs for companies.
We then have four consultations to address non compliance more generally:
- How HMRC can make better use of third-party data to increase automation and close the tax gap — that is the bulk collection of information from banks and other financial institutions to focus HMRC’s tax enquiry activities.
- Proposals to strengthen HMRC’s ability to take action against tax advisers who facilitate noncompliance from their clients
- A comprehensive package of measures addressing promoters of marketed tax avoidance
- Options to simplify and strengthen HMRC’s penalties for inaccuracy and failure to notify
The Spring Statement also refers to the new HMRC reward scheme for informants, which will be launched later this year to target serious noncompliance involving large corporates, wealthy individuals, and offshore and avoidance schemes.
The Government has also confirmed that sole traders and landlords with qualifying income exceeding £20,000 will be brought within Making Tax Digital (MTD) for income tax Self Assessment (ITSA) from April 2028. To encourage taxpayers to pay on time, late payment penalties will be increased for value-added tax (VAT) taxpayers and ITSA taxpayers as they join MTD from April 2025 onward.
We all support measures to ensure the right amount of tax is paid by the right people. However penalties for being late or getting it wrong have and will continue to increase and getting the right professional advice in dealing with your tax affairs becomes more important than ever.
