After what seems to have been a long time coming, we are finally reaching the point where the merged R&D expenditure credit scheme will become the norm.
Plenty of effort has gone in to addressing areas of the scheme that have been challenging for businesses, such as contracting out and the subsidised rule. Taken together with learnings from the spike in HMRC enquiries as well as R&D FTT tax cases – are we set for plain sailing or do we have some bumpy waters ahead?
When is it the R&D claimants’ financial risk?
It is worth considering contracting out and subsidy together. When the Tribunal was faced with those subjects in Stage One Creative, Quinn and Colins Construction, the outcomes had the same hallmarks. All cases fundamentally considered the financial risk with discussion on the commercial profitability, or indeed loss-making projects, as well as the contractual intent of the commercial relationships. When we look at the new rules, the language included, ‘intended or contemplated’, reflects the practical discussion held in the Tribunals and it is fair to expect that the precedent set will continue to be of value to any future cases.
Food for thought is the unintended consequences of the removal of the subsidisation rules. HMRC had previously made it clear that they feared the risk of ‘double dipping’ for the same project. With this rule now out, how subsidy is viewed against the discussions held in the previous Tribunal cases may invite some useful debate. Will we be able to fall back on the decision in Perenco?
The vital opinion of the competent professional
The merged RDEC scheme still remains aligned to the intent and purpose of the previous schemes and the assessment criteria remain. The key point with these criteria is that they are consciously broad and open to interpretation, so the role of the competent professional is a vital part of any claims process. In the tribunal hearings of AHK, Flametree and Stage One and Get Onbord, the tribunals underlined that the judgement of the competent professional held significant weight in the decision-making process. Get Onbord is powerful in firstly demonstrating this but also outlining the parameters of what a competent professional is, with a wider interpretation here too. What we can see as good examples of expectation, Hadee and Flametree demonstrate what is not considered a competent professional. These principles again feel like that they have staying power and will have a minimal shift in application under the merged RDEC scheme.
Complexity remains
R&D tax relief under the merged RDEC scheme remains a commitment by the current government and whilst there may be some tweaks, there is unlikely to be any further overhaul. The merged RDEC scheme is welcome as it does provide some clarity however, R&D tax relief remains an area that is both complex and nuanced. As we have seen from Tills Plus and Gripple cases the structure and arrangements of payments as well as the inherent (and needed) subjectivity in the R&D tax relief schemes will continue. HMRC remains focused on removing fraud and error, improving certainty as well as positive engagement with taxpayers. We can expect a consistent rate of enquiry to test the principles set out, as well as evolving clarity in the contextual application of the legislation and guidance.
