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Government review of R&D tax relief abuse underway

The Government is currently consulting on proposals to tackle tax relief abuse through the research and development (R&D) tax credit scheme.

However, the Institute of Chartered Accountants in England and Wales (ICAEW) has raised concerns that some of the changes proposed could prevent genuine businesses from accessing R&D support.

Through its consultation – Preventing abuse of the R&D tax relief for SMEs: second consultation – the Government hopes to reduce the potential for fraudulent claims for R&D relief, in particular those individuals who may be exploiting the tax repayment available under the SME scheme.

To achieve this, the proposals suggest limiting claims for a payable R&D credit by reference to the claimant’s pay as you earn (PAYE) liabilities.

The ICAEW has raised several points of concern about these proposals and fear that they could create an additional burden on compliant businesses.

HMRC has stated that claims below £20,000 will not be affected by the cap, which should mean that start-up ventures with minimal PAYE liabilities are not significantly affected by the new measures.

HMRC has also proposed that businesses making genuine use of the tax credit scheme for R&D expenditure can make an uncapped claim if they provide evidence around the management of intellectual property (IP) to support the claim.

This consultation has been running alongside HMRC’s other proposals which look at the scope of R&D expenditure in relation to cloud services.

This additional consultation closes on 13 October. We will be providing our thoughts to the Government on these proposals and wil aim to keep you updated, as and when new details are confirmed.

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