HMRC have published a report detailing their current approach to handling Research & Development (R&D) tax relief claims. The number and value of claims are rising and so is the associated non-compliance with it standing at nearly 25% for the SME scheme.

  • Latest figures show that in 2020-21, 89,300 R&D claims were submitted, worth £6.6 billion.
  • On this basis, claims by 2027-28 will be worth a forecasted £9.5 billion.
  • It is imperative that HMRC strike a balance between making the claims process quick and easy for taxpayers and at the same time identifying and preventing ineligible or fraudulent claims.
  • The estimated value of error and fraud related to the claim submitted for 2020-21 was £1.13 billion (16.7%). Updated estimates suggest a similar (£1.05 billion) figure for 2022-23.
  • Notably the updated estimate for the 2020 to 2021 level of non-compliance in the SME scheme is 24.4% (£1.04 billion) substantially higher than the 3.6% (£90 million) for the RDEC scheme.
  • HMRC have already increased the number of employees dedicated to working on R&D claims as well as introducing a number of anti-abuse measures in recent years, including:
    • Digital filing.
    • Additional information requirements to be filed with the claim.
    • The UK PAYE cap.
    • Named officers and agents (where involved).
  • It is HMRC's best judgement that current measures have reduced the level of error and fraud by £250 million for 2022-23.

The report details HMRC's compliance approach to help achieve these aims:

  • Helping businesses get it right:
    • Education campaigns aimed at reducing errors.
    • Targeting agents who promote ineligible claims. It is believed the often misleading claims from some agents, such as '100% success rate' and 'recommended by HMRC' fuel ineligible claims.
    • First-time claimants must also notify HMRC in advance of the claim as this group is the most prone to making errors.
  • Operational interventions; using One to Many letters where common errors are made by large numbers of businesses and having the new R&D Anti-Abuse Unit target specific instances of fraud.
  • Working with agents; continuing the two-way conversation between HMRC (highlighting common errors, upcoming changes etc.) and agents/professional bodies (identifying challenges to claiming and changes in the advisory market).
  • Improving HMRC's insight and risking; using the increased information filed with claims from August 2023 to draw insights which will improve the risking process. This will be backed up by the usual channels of seeking feedback.

Further updates on this approach will be shared in Winter 2023.

All of these measures and tighter reviews inevitably impact the processing of claims. The previous HMRC target of processing claims within 28 days now stands at aiming to process 80% of claims within 40% and the experience of those dealing with claims may be that it is even slower than that.

Useful guides on this topic

R&D Tax Relief: Overview
What is R&D Relief? How does it work? Why does the size of the company matter? What is sub-contracted R&D? How do I write an R&D Report? 

R&D Advance Assurance
What is Research and Development (R&D) Advance Assurance? How can I apply? What are the conditions? What are the benefits? 

External link

HMRC's approach to Research and Development tax relief

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