By Nigel Holmes FCA CTA, Senior R&D Consultant at Catax
Shortlisted of Tax Writer of the year 2017 at the Tolley’s Taxation Awards
Tax avoidance. It is a dirty term. It is immoral. Well that is the way it is viewed now. I am old enough to remember that when I first started specialising in tax the term wasn’t seen in such a bad light. Tax evasion was and is illegal. Those committing it deserve their punishment. Tax avoidance was perfectly legal. People and companies would enter schemes and transactions to lower their tax bills. Tax legislation could not keep up. Over time, general anti avoidance provisions and other steps have been taken to ensure tax avoidance is not worth doing anymore. Furthermore, press coverage and the naming of shaming of sports people and celebrities undertaking such tax avoidance has brought the matter into the public domain and during recent difficult financial times such actions were not welcomed by the public.
But what about tax planning? Where does legitimate planning move into tax avoidance? This is subjective but those who think all tax planning should be viewed in the same way as avoidance have misunderstood the purpose of tax legislation. Every person and company is entitled to enter into commercially acceptable tax planning steps to lower their tax bills. Those who remain to be convinced should remember that putting your savings into an ISA, or making a pension contribution, or transferring an unused personal allowance to your spouse is tax planning.
And so is R&D tax relief. It is there, in black and white, in the Corporation Tax Act 2009. It is there to encourage UK companies to carry out R&D which must be good for the UK in the global marketplace. And that is the first reason I love R&D tax relief. It is non-contentious.
Secondly, it is very interesting from an adviser’s perspective. Unlike discussions around other areas of tax planning, which usually involve a dry conversation in an office, undertaking R&D tax relief claims should involve a factory tour, an engineering workshop walk around, a look through glass at lab workers, the wearing of ear and eye protectors, high-visibility jackets – not your usual image of how a tax adviser would be seen. I see how things are made, I see new and wonderful products. I see innovation.
Lastly, the relief is instant. It either lowers a tax bill, or creates losses, or a repayment, or indeed cashback even if the company has never paid any Corporation Tax! This is unlike some tax planning that is for the long term and is difficult to measure.
Unfortunately, there are still not enough companies claiming this very generous relief. Why?
Firstly, some still see it as some form of avoidance. Hopefully the above should clarify that point.
Other companies may believe they are not undertaking R&D. I often use the expression that the relief is not just for “men in white coats”. Think engineering, electronics, IT, manufacturing. Think process not just product. Think small – a large project may have just a small (but costly) R&D element to it. If there are technological challenges and uncertainties that, as far as the company is aware, the solution is not already “out there” then it is worth exploring.
Some companies have received grants towards R&D and don’t believe they can have R&D tax relief too. The way the tax calculation works does differ but you can have both.
Finally, you may simply not be aware of the relief. HMRC encourage the relief and do try to engage with companies but it is down to tax advisers to push this relief. There are many firms offering advice, larger accountancy practices and specialist firms such as Catax. Smaller accountancy firms should not worry that they cannot employ specialists to undertake such claims, and it is a specialist area, and they should be encouraged to allow their clients to seek help from specialist advisers. This is where Catax helps. Many accountants will feel uncomfortable passing R&D tax work to larger firms of accountants due to the risk of losing more work. Catax works alongside accountants complimenting the existing service a company is receiving from their accountant.
So, that is why I love R&D tax relief. Ok, “love” may be a strong feeling, but it is certainly what I have enjoyed most in tax for many years, and hopefully for many more to come.
Nigel Holmes FCA CTA, Senior R&D Consultant at Catax
m 0775 273 2958