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The state of R&D tax credit enquiries

As we step into 2024, it’s important to acknowledge the evolving landscape of R&D tax credit claims, which now demand more attention. HMRC has implemented stringent compliance measures, resulting in a notable surge in enquiries.

This article marks the beginning of a series dedicated to understanding HMRC enquiries, specifically focusing on the current state of R&D tax credit enquiries. Exploring the recent upswing in HMRC enquiries, we delve into the measures taken by HMRC to address non-compliance within the scheme.

The surge in HMRC enquiries

The latest statistics on error and fraud in the R&D tax credit scheme, as outlined in HMRC’s Annual Report and Accounts for 2022-23, reveal a concerning trend. Enquiries into R&D tax credit claims significantly increased in the 2020-2021 period. The SME scheme experienced a particularly high level of error and fraud at around 24.4%, amounting to over £1 billion. In contrast, the RDEC Scheme for larger companies shows a lower rate of 3.6%, equating to £90 million.

According to the most recent figures from HMRC for the tax year 2020-21, approximately 14% of SME claims were found to be wholly non-compliant, and 36% were partially non-compliant. These are significant numbers that shouldn’t be overlooked. 

guide-to-hmrc-rd-enquiries-in-2024

Understanding HMRC’s motivation

The prevalence of error and fraud, especially in the SME scheme, is a systemic problem that HMRC aims to address. Non-compliance, whether unintentional or deliberate, undermines the effectiveness and credibility of the R&D tax relief scheme. By conducting thorough investigations, HMRC aims to ensure genuine innovators receive R&D tax credits.

To tackle this issue, several policy changes have been put into effect. As of April 2024, the SME and RDEC schemes will merge into a unified scheme, modelled after the RDEC scheme. Furthermore, in August 2023, the claiming process was modified with the introduction of an Additional Information Form (AIF). This form requires detailed financial and technical documentation, ensuring greater transparency and accountability.

To enhance effectiveness, HMRC has also implemented various operational changes, such as doubling its R&D compliance staff and establishing an R&D Anti-Abuse Unit to proactively detect and prevent fraudulent activities.

Policy changes have a complex impact. While their goal is to improve compliance and reduce fraud, they also complicate the claims process. Companies must navigate more regulations and documentation requirements, demanding a deep understanding of tax laws and meticulous claim preparation. To avoid prolonged enquiries, delayed credit receipt, and financial penalties, businesses must ensure compliant and well-substantiated claims aligned with HMRC’s guidelines.

Why work with EmpowerRD?

EmpowerRD offers comprehensive support for R&D tax claim enquiries, ensuring a smooth and compliant process. Our services include:

  1. Standard enquiry support: Our service includes standard enquiry support, making it hassle-free for our clients.
  2. Experienced team: Our Enquiry Response team comprises individuals with extensive expertise.
  3. Intuitive platform: Unlike traditional advisors who use spreadsheets and email chains to compile a claim, our platform consolidates all data, finances, and documentation in one place. This organised approach ensures a centralised data trail, making claim defence more efficient and robust.
  4. Client communication: We inform our clients at every stage of the enquiry process, ensuring transparency.
  5. Data management: We ensure that your claim report contains sufficient information and, if necessary, work closely with clients to gather additional data.
  6. Direct HMRC communication: EmpowerRD handles all communications with HMRC, simplifying the process for our clients.

In 2023, EmpowerRD maintained an impressively low enquiry rate of just 2.4%. This starkly contrasts with HMRC’s reported non-compliance rates for the tax year 2020-2021. While these rates do not guarantee an enquiry, the significant difference in averages underscores our unwavering commitment to minimising compliance issues for our clients. With meticulous attention to detail and a steadfast dedication to excellence, we consistently strive to provide our clients with the highest level of service and peace of mind.

Trusted Partner for R&D Tax Claims:

EmpowerRD has assisted over 1200+ UK companies in building optimised and compliant R&D tax claims totalling over £200 million. Our experts are here to support your business. Contact us today if you have any questions.

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