Companies investing in qualifying research and development (R&D) can benefit from R&D tax reliefs which often prove extremely beneficial. For loss making claimants under the SME regime, there is scope to recover up to just over 33 per cent of the qualifying R&D spend as a payable tax credit. For claimants under the R&D expenditure credit (RDEC) scheme (typically but not exclusively large businesses), the payable credit for loss making companies is lower, at a net, after tax, rate of up to just under 10 per cent of the qualifying spend.
However, companies are experiencing considerable delays in HMRC's processing of payable R&D credit claims. These delays could impact on future investment by companies into further innovation, impacting companies’ financial results and indeed, the growth of the wider economy.
Current processing times
We understand from HMRC that processing times were as follows on 2 September 2019.
- SME regime – claims submitted on 31 May 2019 being processed (ie over three months delay); and
- RDEC regime – claims submitted on 27 December 2018 being processed (ie over eight months delay).
Once a claim has been processed, and assuming HMRC has no queries, it usually takes five days for a repayment to be received.
HMRC aims to process SME claims within 28 days of submission, which is clearly not happening. HMRC has not stated any firm target for processing claims under the RDEC scheme, but it aims for these to be dealt with within a reasonable timescale and eight months seems excessive. Based on our experience, the unprecedented delays are impacting the investment and growth plans of some companies and, coupled with other factors (such as uncertainty around Brexit in particular and in markets generally), a failure to resolve the situation could ultimately negatively impact the economy more widely .
What’s causing this delay? What are HMRC doing?
HMRC has acknowledged this delay and apologised.
It ascribes the delay to recent staff shortages, coupled with increasing numbers of claims being submitted. HMRC has also confirmed it is recruiting new staff to process claims – but it notes that it will take time to train these new people and there has been no significant improvement to processing times for some weeks now.
HMRC’s aim is to improve the overall position to be as close as possible to a 28-day turnaround time on both SME claims and RDEC claims by 30 September 2019. However, no guarantee has been given as to whether this ambitious aim is achievable, and given the limited progress made to date in clearing the backlog, it appears unwise to assume that it will be attained .
So what next?
RSM has made appropriate representations, setting out the difficulties and frustrations that the current situation is causing taxpayers. We will continue to monitor the situation and we have asked HMRC to outline the exact nature and impact of resourcing issues and what specific actions are being taken in the short term to ensure the backlog is cleared. We are also seeking to understand what changes are intended to how claims will be handled in the long term, to mitigate significant delays.
Our message to anybody making (or thinking of making) a claim is clear – the sooner you submit your claim, the sooner it is likely to be processed.
Through our national team of specialists, we have supported our clients in making over 600 claims for R&D tax relief in the last 12 months, under both the SME and RDEC regimes.