CIOT’s Appreciation for HMRC’s Acknowledgment
The Chartered Institute of Taxation (CIOT) has expressed its appreciation for HMRC’s recognition of the issues surrounding research and development (R&D) tax relief claims. HMRC has acknowledged that its handling of some R&D tax relief claims did not meet its own standards and Charter commitments. The CIOT welcomes HMRC’s commitment to improving its training and assurance processes in response to these concerns.
Concerns Over HMRC’s ‘Volume Approach’
Despite the positive acknowledgment from HMRC, the CIOT remains concerned about the tax authority’s ‘volume approach’ to managing R&D enquiries. This approach, which has been in place since late 2022, involves frequent challenges and standardized letters. Leaving little room for businesses and their advisors to explain the complex nature of R&D activities. The CIOT is worried that legitimate claims may continue to be rejected under this approach. Potentially undermining the objectives of fostering innovation and economic growth.
CIOT’s July Letter to HMRC
The CIOT’s Response to HMRC’s handling of R&D tax relief claims were first expressing in a letter sent to HMRC in July. In this letter, the CIOT shared its members’ concerns about how HMRC was conducting R&D enquiries, particularly in relation to claims by small and medium-sized enterprises (SMEs). The focus of the exchange of letters between the CIOT and HMRC centers on the ‘volume compliance’ approach adopted by HMRC in response to the challenges posed by fraudulent and erroneous claims.
HMRC’s Response and Acknowledgment of Issues
In its response to the CIOT’s letter, HMRC acknowledged the issues raised by the institute and outlined steps it intends to take to address them. This includes improving training and assurance processes. The CIOT appreciates HMRC’s response and the open dialogue that has been established regarding compliance matters.
Balancing Abuse Prevention and Legitimate Claims
While the CIOT’s Response to HMRC’s to address abuse of R&D relief. It emphasizes the importance of ensuring that actions taken by HMRC align with its professional standards, Charter commitments, and legal requirements. The CIOT contends that the current volume compliance approach may not be suitable for R&D tax relief claims due to their complexity. The technical considerations involved in determining eligibility.
Impact on Genuine Claimants
One of the CIOT’s key concerns is that the volume compliance approach may result in the rejection of genuine claims. Without due consideration of the facts, expert opinions, or reasoned judgments. The CIOT highlights the need for a fair hearing where evidence presents and guidelines on R&D and penalties are correctly applying.
Escalation Processes and Meetings
HMRC’s letter mentions the possibility of meetings (Escalation processes) in the future. But it is not entirely clear how this avenue will operate. The CIOT expresses disappointment that the determination of whether a meeting is necessary seems to be solely within the discretion of HMRC. The institute stresses the importance of a fair and consistent approach to compliance activities.
Supporting Policy Objectives
The CIOT believes that compliance processes should align with the policy objective of encouraging R&D. Delivering fair and consistent treatment of taxpayers and their agents. While welcoming the new compliance measures introduced in August 2023 and the training of HMRC R&D teams. The CIOT looks forward to collaborating with HMRC to improve the situation. Ensuring that agents understand the requirements related to R&D relief claims.
The Role of CIOT
As part of its commitment to upholding professional standards in the tax service industry. The CIOT emphasizes its role in supporting its members and maintaining high standards. The institute’s collaboration with HMRC aims to address the challenges associated with R&D tax relief claims. While ensuring that the policy objectives of promoting innovation and economic growth are meeting.
Looking Ahead to a Balanced Approach
In conclusion, the CIOT acknowledges the need to address fraudulent claims but urges HMRC to strike a balance between abuse prevention and the facilitation of legitimate R&D tax relief claims. The institute remains committed to working with HMRC to improve compliance processes. Safeguard the interests of taxpayers and businesses engaged in research and development activities.
