The county's leading business organisation is calling on the Government to urgently implement reforms to a longstanding tax relief scheme that is now hurting the very small companies it was set up to help.

Established in 2000, Research & Development (R&D) Tax Reliefs incentivise firms who invest in genuine product innovation through the Corporation Tax system. In that time, it is estimated that thousands of Suffolk-based SMEs, across a range of market sectors, have benefited, which in turn has contributed to boosting jobs and further investment in the local economy.

But a new report from Suffolk Chamber of Commerce suggests that recent changes in practice and personnel at His Majesty's Revenue & Customs (HMRC), which administers the scheme, and what is being described as a 'wild west' regulatory system in terms of who can act as R&D Tax advisors on behalf of claimants is undermining confidence and take-up.

The Chamber's R&D Tax Reliefs Task & Finish Group was chaired by Steve Elsom, a director of Number 4 Consulting. "Our original research into local businesses' experiences shows that the lack of knowledgeable experts at the HMRC, plus the imposition of an overly strict compliance regime is causing many legitimate companies' most recent claims to be delayed and/or refused, with others fearful that previously successful claims from previous years might now be challenged.

"Every right-thinking person applauds the crackdown in fraudulent claims, but the HMRC appears to be going to extremes in its definition of the term. Our research showed that companies which might have made a very minor administrative error in their application are counted as fraudulent!"

The Task & Finish Group collected both a number of case studies and original survey research, with the latter showing that 46% of respondents are now deterred from making future claims based on their latest experience.

According to Matt Moss, chair of Suffolk Chamber's Economy Group which commissioned the Task & Finish Group, there is also a problem at the other end of the system: "The lack of any meaningful regulation means that the market is flooded with poorly qualified advisors who frequently fail to provide the best level of service to their business customers. That is why I'm especially pleased that the report both recommends that an industry regulator be appointed and the simple quality control suggestion that all claims be signed off by a senior qualified accountant."

The Group also welcomed the news in the Spring Budget that the Government wanted to establish an expert panel to look into some of the problems being identified, but called on it to be focused on SME concerns and for its remit to be broadened beyond the two sectors – life sciences and tech – proposed.

The Group has shared its report with HMRC, the British Chambers of Commerce, Treasury and shadow Treasury ministers as well as Suffolk's seven MPs and selected Parliamentary candidates.

Suffolk Chamber will be also directly lobbying for the changes recommended, which will form a key part of its General Election manifesto.

Its recommendations are as follows: 

• That the Government invests in more and better qualified HMRC staff, especially those with a specific knowledge of Research & Development 
• That the HMRC's legitimate approach to reducing fraudulent claims is better targeted and more evidence-based than the current volume compliance approach
• That the HMRC employs a more accurate reporting as to the level of fraudulent claims, as opposed to those containing minor, administrative errors
• That the HMRC seeks to develop a more streamlined and fairer approach to R&D Tax Relief appeals
• That the R&D Tax Relief expert panel, announced in the Spring Budget 2024, is focussed upon the experiences of SMEs and its remit is widen to include a broader of sectors
• That an industry regulator to be appointed. The regulator will be the conduit for business, professional advisors, government and HMRC to represent members and ensure that a code of conduct and integrity is upheld. The regulator would also be the catalyst for overseeing an improvement in the quality of submitted claims.
• It be made a legal requirement that all R&D Tax Relief claims to be signed off by a qualified accountant with relevant experience either a CTA or ATT. The introduction of this level of 'sign off' will improve the overall quality of submissions and remove the likelihood of spurious and illegitimate claims being submitted through non-qualified agencies.