HMRC’s annual report suggests that the tax authority is getting much tougher on historic R&D tax relief claims it suspects may be incorrect or fraudulent.
The new statistics show that the tax under consideration in R&D investigations being carried out by HMRC’s Wealthy and Mid-sized Business Compliance Directorate has doubled over the past year to reach £641m in 2023/24.
Over the last few years, there has been increasing concern about the level of fraud and error in R&D claims. Last year, HMRC published a new analysis of R&D claims in 2020-21 which estimated that almost a quarter (24.4%) of claims by value in the SME scheme and 3.6% of claims in the RDEC scheme were either incorrect or fraudulent – with a combined cost to the Exchequer of an estimated £1.13bn.
While the new report shows the estimated level of “error and fraud” in claims for 2022/23 is almost unchanged, HMRC estimates that its policy and operational measures in 2023/24 – notably the introduction of the Additional Information Form – will have reduced the overall level of error and fraud in claims to 7.8% overall (down from 13.3% in 2022/23).
Commenting on the report, Carrie Rutland, Innovations Incentives partner at accountancy and business advisory firm BDO, said: “We’ve been aware of an increase in HMRC activity in relation to historic R&D claims. Buried in the detail of today’s report are clear signs that the tax authority is getting much tougher when it comes to investigating past claims it thinks were wrong or fraudulent.
“In our view, the published increases in tax under consideration must equate to a lot more R&D investigations.
“With an increase in targeted HMRC activity, many businesses may find they are subject to an enquiry triggering a large clawback in R&D tax credits. Many will require specialist advice to ensure their claims, both historic and current, are watertight.”
