HMRC crack down on R&D fraud and improper claims

Research and Development tax relief is one of the most valuable tax incentives available to SMEs. Last year, HMRC paid out over £5.3bn to claimants and in recent times awareness of the relief has increased dramatically.

Whilst all of this is great for UK innovation, it has resulted in a significant rise in both the number of advisors giving out wrong information and fraudsters looking to exploit the scheme. But this has not gone unnoticed by HMRC who are cracking down on R&D tax fraud and improper claims. As well as taking a harsher stance on those who abuse the relief, HMRC have introduced new measures designed to ensure the relief only goes to those who should receive it.

HMRC crack down on fraudsters

Just last week, possibly one of the worst cases of R&D fraud hit the headlines. Three people were sentenced to 21 years imprisonment for attempting to claim an astronomical £29.5m in fraudulent R&D relief.

The three men claimed to have spent £137.4m on a bogus IT healthcare system for two countries in the Middle East. However, when HMRC asked for supporting evidence and documentation, they found falsified bank statements which prompted a full enquiry. Thankfully HMRC’s thorough investigation processes meant the claim was found to be out and out fraud, but it goes show the extent to which people will go to exploit this valuable relief.

New measures to prevent abuse

HMRC are taking a tougher stance on the over-claiming of R&D tax credits. In November, new measures were announced to further prevent abuse by capping the amount some companies can claim. The new measures, which will come into play as of 1 April 2021, will limit the amount SMEs can claim in R&D tax credits to £20,000 plus 300% of their PAYE and NIC liability. The cap will also extend to the liabilities of groups and related parties, as long as they are attributable to the R&D project.

The importance of professional standards

The last few years have seen a significant rise in the number of tax boutiques. Whilst most are perfectly legitimate and give good advice, some of these boutiques fall outside of professional industry bodies meaning they are unregulated and don’t follow PCRT guidance.

Tax legislation is complex and advisors without sufficient expertise or experience have the potential to wrongly assess eligibility, include inaccurate analysis of expenditure, or provide insufficient supporting analysis or records.

This can result in lengthily enquiries – or even potential penalties - by HMRC who are imposing greater scrutiny across the board. For companies unsure of the R&D process, it is critical that advice is sought from a credible and established adviser. Ideally one that is governed by an industry code of conduct.

Supporting you with R&D tax relief

R&D tax credits can be invaluable to business owners, and during these uncertain times, it has never been more important to ensure businesses are receiving accurate advice.

As a team made up of ex-HMRC inspectors, qualified chartered tax advisors and sector specialists, we can help bridge the technical gap between your business and HMRC. We’re here to help you assemble a robust claim whilst giving you confidence that your R&D claim is in safe hands. If you need support with your R&D claim, please get in touch with our tax incentives and reliefs team.