The R&D tax relief landscape is not a pretty one at the moment.  Issues around high levels of inaccurate and/or fraudulent claims being submitted have been allowed to snowball for far too long and HMRC’s current efforts to tackle abuse of the schemes has proven to be problematic in itself.

HMRC are managing to stop many invalid R&D claims but its aggressive approach to compliance checks is also leading to valid claims being rejected and high levels of cases being referred for review, Alternative Dispute Resolution (ADR) and Tribunal.  This is causing a number of issues such as:

• SMEs losing faith in HMRC and the schemes which were designed as an incentive now seem too risky to encourage spend on R&D.
• R&D advisors/accountants can’t afford to offer advice to smaller SMEs.  The increased risk of a compliance check, which could take over a year to navigate, has increased advisors’ fees to an extent that smaller SMEs cannot afford them anymore which means they either don’t claim, or they try to claim themselves which will lead to more problems due to misunderstanding. HMRC are also more likely to fine companies that do not seek professional advice when compiling a claim.
• Good R&D advisors may stop offering this service which would be really problematic as good advisors are hard to come by at the moment.
• The figures of error and fraud which HMRC are advertising are useless.  These are based on a random sample of the results of just under 500 compliance checks, but these checks were carried out by poorly trained caseworkers using a new ‘volume approach’ which is fundamentally flawed and so there is little confidence that the claims found to be inaccurate necessarily were.   It is not known whether the rulings in any of these cases have been/will be overturned during review, ADR or Tribunal.

If you have any questions on this blog or anything R&D related, please contact us at [email protected].

Posted: 23 Jul 2024