On 17 July 2023, HMRC published its latest report into research and development tax reliefs, which contained several updated statistics on the amount of error and fraud it estimates occurs through R&D claims.

HMRC's new estimate for error and fraud for 2020/21 is £1.13bn, representing 16.7% of the total amount paid out in R&D claims for the year. This figure is significantly higher than the previously published estimate of 3.6% for 2020/21.

The number of R&D claims received by HMRC has risen year-on-year. From 2015 to 2016, there were 43,665, totalling £4 billion. This had increased to 89,300 claims, totalling £6.6 billion, by 2020 to 2021. HMRC expects the cost of claims received in 2027 to 2028 to total £9.5 billion.

Over the last three years, HMRC has more than doubled the number of people working on R&D compliance. This includes an extra 300 people tackling non-compliance.

As part of increasing the number of people working on R&D compliance, in July 2022, a dedicated R&D Anti-Abuse Unit was created to tackle incorrect claims and open enquiries into the most complex cases. As a result, it blocked £85 million in fraudulent claims, challenging more than 2,500 suspected claims and arresting nine people.

In addition to increased resources for HMRC, new policy measures have been introduced to counter non-compliance. The main ones are listed below.

  • Requiring all claims to be made digitally – allowing HMRC to risk assess claims more effectively.
  • Requiring each claim to be accompanied by additional information so HMRC can better identify and target higher-risk claims.
  • Reducing the amount of payable relief in the SME scheme to £20,000 plus 300% of the company's PAYE NICs liability
  • Requiring each claim to be supported by a named company officer to help prevent claims from being submitted without the company's knowledge or understanding.
  • Requiring details of any agent associated with a claim so HMRC can move quickly where it has concerns about potential agent misconduct.
  • Limiting the ability of agents who facilitate spurious claims to do so for earlier years where a company has correctly not previously claimed the relief.

HM Treasury has recently consulted on designing a potential research and development tax relief scheme that merges the existing RDEC and SME schemes and published its outcome on 18 July.

The Government has not yet decided on whether to merge the schemes and intends to keep open the option of doing so from 2024. A decision on whether to join will be made at the next fiscal event.

As a member of the esteemed top 20* UK network of chartered accountants, UHY Hacker Young boasts a dedicated team of R&D specialists with vast expertise spanning various sectors.

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