UK Startups Frustrated by HMRC Delays
UK Start-Ups Sound Frustration Alarm Over HMRC Delays
Entrepreneurs across the UK are voicing mounting frustration with the perceived slowness and communication issues stemming from HMRC (Her Majesty's Revenue and Customs). Buy Women Built (BWB), a prominent business group, asserts that its members are left floundering when attempting to access much-needed tax incentive schemes intended to bolster fledgling businesses.
The group maintains that establishing contact with HMRC proves extremely challenging. Furthermore, there are cases where delays in obtaining tax credits stifle firms financially, leaving them unable to settle bills. HMRC counters these claims, stating that an overwhelming majority of legitimate claims are settled in a timely fashion.
A Call for Urgent Review
"Female founders within our community have seen a troubling uptick in obstacles when accessing vital government incentives designed to foster new businesses and innovation," explains Sahar Hashemi, co-founder of BWB, a network supporting some 450 female entrepreneurs.
She specifically highlights ongoing difficulties surrounding R&D (research and development) tax credits and the Enterprise Investment Scheme (EIS) tax relief. Let's briefly examine their purpose:
R&D Tax Relief: Enacted in 2000, this scheme aims to support small and medium-sized enterprises (SMEs) that choose to invest resources in innovation.
EIS Tax Relief: Established in 1994, EIS bolsters the appeal of eligible start-ups to investors by enabling the purchase of shares in a more tax-efficient manner.
"We urge a swift review of the funding protocols to ensure HMRC personnel are fully cognizant of the legitimacy of these claims," Hashemi states. She previously co-founded the Coffee Republic chain and held the co-chair position within the government's Scale-Up Taskforce.
Hashemi posits that these ongoing struggles with HMRC have a disproportionately negative impact on female-founded businesses. This, she contends, is due to the alarming fact that they currently attract a mere 2% of venture capital within the UK.
Financial Distress and Government Response
According to a recent report by Begbies Traynor, an insolvency specialist, businesses teetering on the brink of financial collapse saw an increase of over 25% as 2023 drew to a close. Notably, just three months earlier, their report indicated that insolvency rates were on track to outpace figures observed since the throes of the 2009 financial crisis.
Prime Minister Rishi Sunak has vowed to accelerate economic growth within the UK, where current GDP figures depict a worrying stagnancy. One potential path towards this goal lies in empowering entrepreneurs.
The Dire Consequences of Bureaucracy
Last year, a prominent accountants' group decried the impact of understaffing at HMRC. They alleged this created unreasonable delays, which in turn hampered economic activity. One accountant went so far as to dub the service level "diabolical".
For start-ups, reliance on tax incentives is essential to keep their heads above water. Consequently, when paperwork and payments stagnate within the system, the ramifications can prove devastating.
Voices From the Front Lines of UK Start-Ups
Anna Maxwell, CEO and founder of consumer healthcare company Maxwellia, a BWB member, shares her perspective: "HMRC routinely maintains significant backlogs when reviewing applications, which postpones the crucial receipt of R&D credit funds," she explains. "For some businesses, this lag can cripple cash flow to such an extent that paying basic bills becomes an insurmountable challenge. On top of this, HMRC itself is remarkably difficult to reach, with wait times for calls easily exceeding an hour."
Peter Cowley of Cambridge Angels, a seasoned investor in tech start-ups with over 15 years of experience, describes R&D tax relief as an invaluable lifeline for countless young ventures. However, he agrees that the current process suffers from severe sluggishness – an issue present for many years.
Cowley offers a potential reason for this persistent backlog, stating that previous abuses of the R&D tax relief by unscrupulous companies forced HMRC to implement stricter procedures.
The struggle for timely relief extends beyond R&D credits, though. Joanna Jensen, both founder of Childs Farm skincare and a strategic adviser to BWB, laments ongoing delays in processing EIS tax relief claims.
"I've personally been awaiting an EIS rebate for an unacceptable eight months now, to the point where I had to involve my MP," Jensen reveals. "HMRC essentially went offline over the summer, shutting down their helplines. Even when we've managed to speak with someone, the response is always the same: 'it's being looked at next month.' These delays and this lack of clarity make the scheme less enticing for potential angel investors."
HMRC's Response
When approached for comment, HMRC stated they were unable to discuss specific cases without detailed information. However, they provided a statement asserting, "Public money is at stake, and taxpayers rightly expect us to scrutinize claims. We do that thoroughly and fairly, and the overwhelming majority of valid claims are paid on time."
A Complex Issue with Wider Ramifications
While HMRC emphasizes its focus on legitimacy, the frustrations voiced by the start-up community are undeniable. There appears to be a disconnect between the government's goal of bolstering entrepreneurship and the bureaucratic realities faced by young businesses.
The repercussions might go beyond hindering individual start-ups. If the UK develops a reputation for slow, opaque tax processes, it could dampen enthusiasm among future entrepreneurs and investors alike. The long-term health of the UK's start-up ecosystem may be hanging in the balance.
Call for Action from BWB
In light of these concerns, Sahar Hashemi of Buy Women Built is not backing down. She reiterates her call for an urgent review of HMRC protocols, ensuring that their staff understands the unique needs and timelines of innovative start-ups. "We owe it to the future of UK business to provide clarity and efficiency, rather than the frustration and uncertainty that many, particularly female founders, are currently facing," she insists.
Where Can Start-Ups Look for Support?
Amidst this climate of frustration, it's natural for start-up founders to wonder if there are alternative paths to support during these challenging times. Fortunately, organizations and initiatives do exist to offer guidance and a sense of community.
Accelerators and Incubators: These programs provide start-ups with various resources, including mentorship, networking opportunities, and sometimes, even funding. Accelerators typically have a set timeframe with a focused goal, whereas incubators might offer more open-ended support.
Peer-to-Peer Networks: Organizations like Buy Women Built and others that cater to entrepreneurs can prove invaluable. They provide forums for exchanging experiences and advice, as well as potential collaborations.
Government Resources: Outside of HMRC, there are governmental bodies with the explicit aim of supporting UK start-ups. Innovate UK, for example, connects businesses with funding, expertise, and partners. The British Business Bank offers a variety of financing options, especially for enterprises frequently overlooked by traditional lending institutions.
Proactive Steps Start-Ups Can Take
While waiting on HMRC can be an exercise in patience, founders need not feel completely powerless. Here's what they can do to improve their chances of a smooth process:
Careful Record Keeping: Meticulous documentation of all activity potentially qualifying for R&D or EIS tax relief is non-negotiable. This includes records of expenditure, project goals and outcomes, technical challenges faced, and any communication with HMRC.
Hire a Tax Specialist: The intricacies of tax incentive schemes may be overwhelming for early-stage founders. Investing in a tax specialist experienced in R&D tax credits and EIS filings can save enormous headaches and potential financial missteps.
Maintain Open Communication: Should a start-up anticipate a delay in filing standard tax returns due to awaiting R&D credit funds, it's imperative to inform HMRC as early as possible. This may prevent unnecessary penalties and opens a dialogue about potential solutions.
The Importance of Persistence
While the current HMRC situation casts a shadow, it's vital to remember that starting a business is always an inherently challenging journey. UK-based start-ups have, in the past, proven resilient and groundbreaking.
Sarah Wood, co-founder of video advertising tech company Unruly and active angel investor, offers some much-needed perspective. "The start-up journey is never smooth sailing, and HMRC delays can definitely add to the challenges," she acknowledges. "However, strong founders will find ways to adapt, explore alternative funding sources, and persevere. That's the entrepreneurial spirit."
The Need for Systemic Improvement
Optimism aside, there's little doubt that the efficiency and communication of HMRC procedures have room for improvement. Start-ups operate within tight time constraints, and excessive delays in processing legitimate claims can have severe consequences. For the sake of the UK's innovation landscape, hopefully the repeated calls for reform won't fall on deaf ears.
Examining the Wider Context
To grasp the severity of the frustrations expressed by many UK start-ups, it's useful to compare the current situation with other leading economies.
USA: The US offers its own version of R&D tax credits. While there are some similarities, the US system often utilizes a more simplified methodology to calculate eligible claims. Furthermore, the IRS (Internal Revenue Service) has dedicated helplines specifically for tax professionals and businesses seeking assistance, potentially streamlining communication.
France: The French government has made attracting start-up talent and investment a key priority in recent years. Their "French Tech" initiative includes generous R&D tax credits and a system that tends to favor swift processing of claims.
Germany: Although renowned for its meticulous bureaucracy, Germany has taken steps to make claiming R&D tax benefits a less cumbersome process for start-ups. A pre-approval system exists wherein companies can obtain swift confirmation on whether their project qualifies, preventing wasted time and effort.
Is the UK Losing its Competitive Edge?
The UK, undeniably, has a long and rich history of innovation, and many successful tech-driven companies have emerged from its start-up scene. However, if the current issues plaguing HMRC's processes are not tackled proactively, this momentum could falter.
Investors, particularly venture capital firms with an international outlook, closely monitor the ease of doing business within a potential market. Lengthy bureaucratic hold-ups and inconsistent communication could send a signal that the UK is less hospitable to start-ups than some of its global counterparts.
The "Brain Drain" Threat
Further, there's a potential risk of talented entrepreneurs and researchers deciding to relocate their ventures elsewhere. Attractive innovation hubs exist in abundance, from Berlin to Singapore, and the UK needs to remain competitive to retain top talent.
Potential Paths Forward
While highlighting the severity of the problem is crucial, proposing possible solutions is equally valuable. Here are a few ideas that might be worth further consideration:
Dedicated HMRC Team for Start-up Claims: Establishing a specialized unit trained to quickly evaluate and process claims from young businesses could alleviate backlogs. This team needs to be easily accessible and communicate decisions in a timely fashion.
Digitalization and Transparency: Could better technology streamline the application process and provide real-time status updates to applicants? Increased transparency would give start-ups a better ability to plan their cash flow.
Government-Backed Loans: Perhaps a loan scheme specifically tied to R&D tax claims could be devised. This would offer a crucial lifeline to businesses awaiting a much-needed financial influx.
A Call to Action and a Vision for the Future
It's important to stress that there's a fundamental disconnect when the government proclaims the importance of fostering entrepreneurship, yet an essential arm of that government – HMRC – inadvertently creates obstacles for these businesses. Bridging this gap demands collaboration and constructive dialogue.
Organizations like Buy Women Built play a vital role by amplifying the voices of their members and engaging with policymakers. Nonetheless, individual start-up founders don't have to be bystanders in this process.
Here's how they can become part of the solution:
Share Your Story: Contacting your MP (Member of Parliament) to convey the impact of HMRC delays on your business can add significant weight to larger advocacy efforts.
Join Trade Associations: Groups with a focus on your particular industry sector might offer additional lobbying power and resources.
Engage with the Media: Bringing these issues into the broader public eye helps apply pressure to facilitate change.
It's easy to succumb to cynicism in the face of bureaucratic hurdles. However, the UK's start-up community has proven itself time and again to be a source of remarkable ingenuity and perseverance. The challenges posed by the current situation with HMRC should not be a cause for defeatism, but rather a catalyst for action.
The Potential Ahead
The UK has all the ingredients to remain a global powerhouse of innovation: world-class universities, a skilled workforce, and a relatively favorable business climate. Streamlining the process of accessing vital tax incentives is a step towards fully unlocking that potential.
Imagine a future where HMRC proactively collaborates with start-ups, where processes are efficient and transparent. This would free up valuable time and energy that founders could then pour back into growing their businesses, creating jobs, and pushing the boundaries of technological advancement.
Undoubtedly, challenges will always be an intrinsic part of the entrepreneurial path. However, certain obstacles are avoidable. Let's strive for a system in the UK where start-ups face those inevitable hurdles with the confidence that their government is a supportive partner, not an additional barrier.
