HMRC changes R&D tax relief stance without informing advisers

THE TAXMAN HAS made changes to the application of research and development (R&D) tax relief without informing accountants affected by them, Accountancy Age has discovered.

Under the old application of regulations, prototypes that were later sold, such as helicopters, were not considered eligible for R&D tax relief.

However, at a meeting of the R&D consultative committee in November 2010, HMRC officials informed those present that they were changing the application of the rules for ongoing submissions. But the Corporate Intangibles Research & Development manual was not updated to reflect the changes, leaving advisers that were not present at the meeting at a disadvantage.

Cathy Corns, a tax partner at Mercer & Hole, said that her clients had not been submitting claims for these prototypes because there was nothing official to suggest there had been changes. She added that she only found out through a casual chat with an HMRC inspector.

“For one of my clients, virtually everything they do is a prototype,” she said. “Without this change in policy, they would not be able to claim relief. For them, it is huge. For another, it is probably worth around £200,000 a year. It is not insignificant totals we are talking about here.”

The minutes of the R&D consultative meeting said only that the Revenue “would consider its approach to [disputed] cases individually”. It said it will “in due course consider revising its guidance” depending on the discussions around the cases.

Carmen Aquerreta, a partner in Deloitte’s research and development tax practice, said officials confirmed they would accept claims for these prototypes counting towards tax relief.

“The manual has not changed yet. HMRC is still in a bit of a trial period where it mentions potential changes and it is now applying them,” she said. “Some claims are proving successful. Once HMRC is comfortable that can be done in the broader scale, it will go about modifying some of the documents.”

She added that changes to policy depend on the testing period. “HMRC is being extremely careful and professional in making sure the process of this review is applied across the board to ‘stuck’ claims, which have been stuck because of this matter,” she added.

An HMRC spokesman said: “It was made clear at that meeting, attended by representatives of accountancy bodies, that HMRC would be looking at the facts of cases where this was an issue. This included cases involving prototypes.

“It had always been accepted that R&D expenditure could be incurred on a prototype. The issue is when this expenditure constitutes expenditure on production. HMRC is continuing to discuss this, and guidance will be changed when a final position is reached.”