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Level of R&D tax credit rejections ‘increasing’

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Concerns have been expressed at the number of research and development tax credit claims that are being turned down.

Accountancy practices have suggested that HM Revenue and Customs appears to be refusing more applications for the credits.

Claims for any research linked to the provision of services and goods are no longer being accepted.

Also hit have been smaller firms that carry out R&D tasks on behalf of larger companies, with their applications questioned on the grounds that the research could be interpreted as a service that is being sold on to another business.

The rules on R&D tax credits say that the scheme is intended to back investment and expenditure in those cases where the only potential return should be an advance in science or technology.

In those cases where there is the chance to create sales income as well, such as in the production of goods or services, then the tax relief does not apply.

HMRC has maintained that the application of the guidelines has not changed, although the guidance it offers on its website on production-related R&D may be re-written so that it is made clearer.