The purpose of R&D tax relief is to encourage UK innovation by providing relief on qualifying R&D spend, effectively derisking the cost of the work for companies. This investment in R&D usually leads to scientific and technological advancements, which in turn can lead to job creation and increased expertise in the UK economy, thereby promoting sustainable growth.
While R&D tax relief has been beneficial for countless companies over the past two decades, recent operational changes by HMRC have led to an unprecedented surge in inquiries. The earlier norm of only 1% of claims being questioned has rapidly transformed due to the formation of the HMRC R&D ISBC enquiry team, which is aimed at identifying fraudulent and inflated claims.
The concerning uptick in HMRC inquiries and the stringent application of legislation intended to combat fraudulent claims have inadvertently harmed genuine claimants, stymying the very innovation that these tax reliefs are designed to promote. This 'sledgehammer approach' could jeopardize the UK’s competitive edge in the global market if not addressed appropriately.
Given that innovation is crucial for economic growth, the risks stemming from a depletion in R&D tax relief, alongside a deterrent regulatory environment, present significant dangers. Without appropriate measures to adjust or improve the current system, the UK could find itself at a disadvantage compared to other leading economies that continue to foster their innovative sectors.
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