The slowness of the UK’s tax authority HMRC is holding back entrepreneurs, according to a business group.
Buy Women Built (BWB) says its members have been left frustrated when trying to access tax incentive schemes designed to support start-ups.
The group said trying to contact HMRC was “very difficult” and in some cases delays in receiving the tax credits meant firms could not pay bills.
HMRC said “the overwhelming majority” of all valid claims were paid on time.
“In recent months the female founders in our community have increasingly experienced issues accessing key government incentives aimed at boosting new businesses and innovation,” says Sahar Hashemi, co-founder of BWB, a network of some 450 female entrepreneurs.
In particular, she points to R&D (research and development) tax credits and EIS (Enterprise Investment Scheme) tax relief.
R&D tax relief was introduced in 2000 in order to support small and medium-sized businesses (SMEs) when they invest in equipment that will help them to innovate.
EIS was introduced in 1994 and makes start-ups who qualify more attractive to investors. It allows shares to be bought in a more tax-efficient way.
“We would ask that an urgent review take place on the rules around funding, to ensure that all HMRC staff are aware of the legitimacy of these claims,” says Ms Hashemi, who co-founded High Street chain Coffee Republic and is the former co-chair of the government’s Scale Up Taskforce.
She claims the issues with HMRC are hitting female-founded companies particularly hard because they currently receive only 2% of venture capital in the UK.
The number of firms on the brink of collapse jumped by more than a quarter at the end of 2023, according to the latest report from insolvency specialist Begbies Traynor. It found that 47,477 firms were in critical financial distress in the final quarter of 2023.
Its previous report, published in October, found that the number of companies going bust last year was on track to be the highest since the depths of the financial crisis in 2009.
Prime Minister Rishi Sunak has promised to speed up the UK’s economic growth amid flat GDP figures, and boosting entrepreneurship is one way to do this.
Last year a leading accountants’ group said that understaffing at HMRC was causing unacceptable delays and hindering economic activity, with one accountant calling the service “diabolical”.
Start-ups rely on tax incentives to stay afloat, so delays to paperwork and payments can be critical.
“There are frequently significant backlogs at HMRC to review applications, which delays the timing of the payment of the [R&D] credit,” according to Anna Maxwell, CEO and founder of consumer healthcare company Maxwellia, which is part of the BWB group.
“For some businesses this time lag can impact cashflow, to the extent that they cannot pay their bills. HMRC are very difficult to contact and wait times on calls can be over an hour.”
R&D tax relief is a lifeline for many young companies, says Peter Cowley of Cambridge Angels, who has invested in tech start-ups for more than 15 years.
However, the process has been slow for many years, he argues.
One reason for this is that R&D tax relief has been abused by some companies and HMRC had to tighten up its procedures, he points out.
There are also HMRC delays around claiming the EIS tax relief, according to Joanna Jensen, founder of the Childs Farm skincare brand and strategic adviser to the BWB group.
“I’ve been waiting eight months for an EIS rebate and have now had to get my MP involved,” says Ms Jensen.
“HMRC closed its lines over the summer,” she adds. “Then when we have been able to speak to anyone, they’ve said, ‘they’re looking at it next month.’ If it is problematic or slow to make these rebate claims, it makes it a less attractive investment for angel investors.”
HMRC told the BBC that it could not comment on individual cases without knowing the specific details, but said in a statement: “Public money is at stake and taxpayers rightly expect us to scrutinise claims. We do that thoroughly and fairly, and the overwhelming majority of valid claims are paid on time.”
