Such an event took place in 2016 when the HMRC imprisoned three men for attempting to defraud the HMRC based on an artificial company structure and massively inflated subcontracting costs. They attempted to claim £300,000,000 in R&D Tax Credits through artificial company structures. It’s of no doubt that the R&D Tax Credit Scheme does do a great deal of good for the competitiveness of British industry, and it can similarly not be doubted that the three men in question risked doing a great deal of harm to the R&D Tax Credit Scheme.
Thankfully the men were caught in the act, and governmental support for the R&D Tax Credit Scheme continues to grow within the houses of parliament and beyond, to the tune of a £3.7bn being claimed so far for 2016-2017. A vital part of the government aim to raise UK investment in research and development (R&D) to 2.4% of gross domestic product over the next ten years. Nevertheless, the HMRC is constantly adapting the terms and manner in which the credits are distributed.
On this occasion they’ve done so to guard against the above abuses. It can also be said that (rightly or wrongly) it is also encouraging employers to take staff on internally, i.e. PAYE, rather than subcontract. At the least it’s discouraging company structures whereby subcontracting teams are expansive whilst in-house staff remain thin on the ground. It’s with this in mind that we currently advise our clients who employ similar structures for various pragmatic, practical and business factors.
From April 2020 the qualifiable expenditure for any given business shall be capped at 300% of it’s total PAYE and National Insurance Contribution expenditure.
This gives those businesses that rely on the scheme time to react. Indeed it has forever been the case that the HMRC looked slightly less favourably on subcontractors, with legislation capping subcontractors’ maximum potential time spent on R&D at 65% in many circumstances.
Those considering whether to change their business practices to ensure that their business continues to benefits from the R&D Tax Credit Scheme should feel free to get in touch with us for advice, we’re more than happy to talk you through your options and best practice.