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HMRC denies change on R&D tax relief rules

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HM Revenue and Customs has insisted that it has not altered its position on claims for research and development tax credits.

Worries have been expressed by accountancy professionals that firms are finding it tougher to qualify for R&D tax credits because of a possible re-interpretation of the rules.

The concerns have focussed on two areas: claims for R&D costs as they apply to producing prototypes; and the amount of time that employees spend on research and development work.

While the costs involved in designing and testing the viability of prototypes are not excluded by the rules on tax credits, a more intense interpretation of the regulations could make costs for prototypes that are sold to customers rather than scrapped ineligible.

It has also been suggested that HMRC is directing more attention to 100 per cent claims for staff time, questioning whether it is possible for employees to devote all their working day to research and development to the exclusion of elements of non-R&D activities.

However, HMRC has responded by saying that the rules have not been subjected to a more forceful interpretation.

A spokesman said: “HMRC’s role is to help companies obtain the relief that they are entitled to, while policing the rules and boundaries of the R&D schemes fairly. HMRC does not operate any limit on the amount paid out.

“The RD tax credit schemes form part of wider government action to encourage UK companies to undertake more R&D. So, the only target we are working towards is to provide support to companies that are undertaking qualifying R&D activity.

“The guidelines specifically exclude production of goods or services from the scope of R&D for tax purposes, and so no relief is available for the costs of production activity. However, other activities carried out alongside the production can qualify.

“So while production costs would be excluded a company might be able to claim, for example, for design work, parts consumed in testing, construction of scale models, computer modelling and other costs.

“What is likely to be disallowed are the costs relating to the building of the finished article in terms of materials and labour. In some cases this could amount to only a small proportion of the total costs, depending on the difficulties encountered in reaching the final product.”