Major overhaul of R&D tax credit reporting is critical to UK’s economic recovery

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HMRC has this week published data showing the number of companies claiming Research and Development (R&D) tax credits and the cost to the Exchequer of providing that support.

But in a world focused on the now, this publication has underlined the woeful inadequacy of the figures, according to Jenny Tragner, director at R&D tax credit consultancy ForrestBrown and member of HMRC’s R&D Consultative Committee.

“We’re in the middle of the biggest public health and economic crisis of our generation,” Tragner comments. “R&D will quite literally be the solution to the pandemic, everything from helping businesses to reopen safely to the vaccine itself. And we know from harsh lessons learned during the previous recession that protecting private sector investment in R&D will also be critical to economic recovery. This annual survey should be giving us valuable insight into the state of business R&D in the UK, but it simply fails to do so.”

On reading the 25-page report and accompanying data tables, Tragner said, “While these figures are interesting for those in the R&D tax industry, they actually reveal very little real insight. Despite these figures covering the 2018-19 tax year, the most recent complete data comes from 2017-18. If we think how much has happened just in the past six months, this report starts to resemble a relic from a very different world.

HMRC’s accompanying commentary lists the many limitations and caveats applicable to the data, and makes little attempt at any interpretation or insight. Many commentators will interrogate the data, but any attempts are curtailed by the huge time lag and lack of reliability. Although the figures go all the way back to the inception of the SME incentive in 2000, HMRC failed to record a number of submitted claims pre-2014 and since discovering this error, later years have been subject to regular restatement.

“If HMRC doesn’t seriously consider how to deliver data that is both accurate and relevant, we’ll be left waiting until at least September 2022 before we start to get any data on the impact of COVID-19 on R&D tax claims.

“If the Government is serious about the role that R&D has to play in the post-COVID recovery and beyond, then the impact of the incentive must be measurable”

ForrestBrown is therefore calling upon HMRC to take urgent action. This includes:

–          Greater investment in digital transformation to collect, report and interpret data

–          Creating a methodology for measuring the success of R&D tax credits, and therefore economic stimulus

–          Producing data more quickly to allow better policy decision-making about R&D tax credits can support the recovery

“Our clients know the importance of innovation, so it’s frustrating to see the same problems in this data perpetuate year to year,” concludes Tragner. “It is the right time for HMRC to rethink its approach. Action is needed and it’s needed quickly.”

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