HMRC’s Approach to Research and Development Tax Reliefs

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.