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Error and fraud in R&D tax relief on the rise: What you need to know

The latest HMRC annual report and accounts document for 2021/22 estimates that error and fraud in the R&D tax relief scheme is 4.9% of the total value. This is a reasonable increase on the previous year’s estimate of 3.6%.

SME R&D tax relief scheme has the most fraud

While the SME scheme has the greatest volume of claimants, it also has the highest level of error and fraud: 7.3%, compared to the RDEC (Research and Expenditure Credit) scheme’s 1.1%.

Tackling fraud and improving compliance is HMRC’s top priority

It’s no secret that HMRC’s top priority is to tackle R&D tax credit abuse, and these new estimates give them further evidence to support this approach.

In the 2021 Autumn Budget, a range of reforms to tackle abuse of the R&D incentive was announced. Most of these will take effect in April 2023. However, after identifying a pattern of fraudulent R&D claims in April 2022, HMRC accelerated their pace and implemented additional measures, including:

  • Establishing a threat risk assessment process for all R&D claims.
  • Implementing additional payment identification and verification controls for all R&D payments.
  • Accelerating the creation of HMRC’s Research and Development Anti Abuse Unit.

We’re already seeing the effect of increased scrutiny

When HMRC detected an increase in fraudulent claims in April, payouts slowed dramatically, causing disruption for thousands of UK businesses. The usual advice on processing time was eventually extended from 28 days to 40 days.

While HMRC picked up the pace with payouts over the past few weeks, they’re not loosening up on compliance. We’re aware of an upsurge in businesses receiving letters from HMRC stating that their claims are under review, and requesting more information to clarify the claim’s credibility.

Clearly, HMRC is paying much closer attention to R&D claims. More than ever, it’s essential that your R&D claim is capable of standing up to significant scrutiny.

Choose experience and expertise to ensure future claim compliance

The number of R&D advisors is growing each year, driven by the awareness of the R&D tax credit scheme. Unfortunately, many new entrants lack the expertise or experience to build a solid and compliant claim, resulting in errors being made and HMRC enquiries being raised. Many companies that self-filed claims are in the same situation.

Every claim submitted is now more likely to be reviewed by HMRC. Your best defence? Choose your R&D tax specialist wisely.

Want peace of mind that your claim will be both optimised and strictly compliant? We’d love to chat – please get in touch.

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2023 and Beyond: Unlocking UK Tech Growth Through R&D

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