HMRC have published details on their compliance approach to Research and Development tax reliefs, which makes interesting reading.
HMRC state that the number of R&D claims has risen from 43,665, totalling £4bn, in 2015/16 to 89,300 claims, totalling £6.6bn, by 2020/21. On current forecasts HMRC expects the cost of relief for claims received in 2027/28 to total £9.5bn.
Concern over abuse involving R&D tax reliefs has grown in recent years, particularly amongst SMEs.
Over the last three years, HMRC has more than doubled the number of people working on R&D compliance, including an extra 300 people tackling non-compliance. As part of increasing the people working on R&D compliance, in July 2022 a dedicated R&D Anti-Abuse Unit was created to tackle incorrect claims and open enquiries into the most complex cases.
HMRC states that they have countered criminal attacks on the R&D system involving fraudulent or hijacked businesses, blocking £85m in fraudulent claims, challenging more than 2,500 suspected claims and arresting nine people.
HMRC have also introduced a range of additional measures, including payment identification and verification controls for all claimants. As a consequence of these additional protections, HMRC continues to aim to pay 85% of payable claims within 40 days.
On top of this are the numerous changes in law in this year’s FA. These changes include:
requiring all claims to be made digitally – allowing HMRC to more effectively risk assess claims
- requiring each claim to be accompanied by additional information so HMRC can better identify and target higher-risk claims;
- reducing the amount of payable relief in the SME scheme to £20,000 plus 300% of the company’s PAYE NICs liability, preventing offshore companies with little or no UK operations from artificially channelling activity through the UK in order to claim the relief;
- requiring each claim to be supported by a named officer of the company to help prevent claims being submitted without the company’s knowledge or understanding;
- requiring details of any agent associated with a claim so HMRC can move quickly where it has concern about potential agent misconduct;
- limiting the ability of agents who facilitate spurious claims to do so for earlier years where a company has correctly not previously claimed the relief; and
- proactively reaching out to customers who are new to R&D regimes and to those in sectors where there are limited opportunities for businesses to make compliant claims.
To find out more listen to our Tax Update - Finance Act course.