Delays to tax credits force startups to raise costly emergency funds

Significant delays by HM Revenue & Customs’ (HMRC) in the processing of Research & Development (R&D) Tax Relief claims in 2019 forced many startups to raise emergency funds.

According to findings published on 16 February by the Financial Times* the long delays caused serious concerns for businesses who rely on HM Government’s investment in these reliefs to support their innovation, in particular startups who rely on inward investment and R&D Tax Relief rather than the built up reserves of more mature companies.

Processing, which generally takes six to eight weeks, took months in some cases in 2019, with one tech business saying they spent “six to seven months chasing HMRC,” leaving them with no choice but to raise expensive convertible debt to plug a hole in the balance sheet.

On 24 June, we wrote to Mr Jesse Norman**, Financial Secretary to the Treasury, asking him to conduct an urgent review into the delays and to report back to us regarding the reasons for these issues and what was intended to be done to improve matters. HMRC acknowledged our letter, but could not give any guarantees of improvements at that time.

Speaking to the Financial Times this week, an HMRC spokesperson said it was “sorry that some businesses have not received payments as quickly as we would like, and staff have been recruited to help with processing”, adding that it “reviews tens of thousands of claims for R&D tax relief each year”, which are always carefully assessed.

For startups who rely heavily on cashflow, delays in government R&D relief can have a significant impact on their business, often leaving them having to cut back on hiring, projects or other growth initiatives and, as many SMEs look to submit their claims in March following the common end of accounting year in December, concerns are growing that the issue of delays could return again.

Steve Govey, Head of Research & Development Tax Relief at Beavis Morgan, comments: “To safeguard against any delays this year, we are working hard to ensure that claims are submitted as fast as possible for our clients and, as with 2019, we will continue to put pressure on HMRC to ensure that claims are processed timeously.”

The process of claiming R&D Tax Relief can be complex and it requires specific technical expertise to present the application effectively to HMRC. However, with the right adviser it may be easier than you think to claim tax relief.

For further information or to arrange for a no obligation preliminary meeting on how your company could qualify under the R&D Scheme, please contact Steve Govey, Head of Research & Development at Beavis Morgan, or your usual Beavis Morgan Partner. 

View our video to find out more about R&D Tax Relief:

* FT – HMRC delays cause cash crunch at UK start-ups

** Delays in processing R&D Tax Relief claims – Letter to HMRC