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Tightening up on R&D relief – are stronger controls long overdue?

Tightening up on R&D relief – are stronger controls long overdue?

It was unsurprising that the recent arrest of eight people (including a tax agent) on suspicion of conspiring to submit over 100 fraudulent R&D relief claims, made the headlines.  Reports suggest that further arrests will follow while HMRC put out a statement confirming that, by acting quickly, it prevented public funds in the order of £46 million being lost to fraud. 
However, the above development is hardly unique.  In late 2020, Birmingham Crown Court heard how Convergica (Clinical Information Systems) Ltd made bogus claims to tax relief of £29.5m against a purported £137m spend on developing an IT healthcare system for two countries in the Middle East.  In that case, the three men responsible were jailed for a collective term of 21 years. 

Whilst the above represent examples of extreme abuse of the R&D tax relief regime, many more incorrect claims have been filed with some inevitably slipping through the net. 

The R&D programme was introduced in 2000 to encourage innovation and research in the UK.  It is fair to say that the number of claims has increased substantially in recent years, rising from approximately 35,000 in 2014/15 to 86,000 in 2019/20.  In the midst of these increasing numbers, HMRC accepts that within the claims it has allowed there are significant numbers which are incorrect.  This is further supported by the Business Enterprise Research and Development (BERD) Survey which, amongst other things, measures R&D spending patterns in the UK.  Data indicates that the quantum of R&D claims per HMRC figures have been substantially greater than the actual amount of R&D spend.  

Reforms to the R&D regime come into effect from 1 April 2023.  The changes include measures aimed at tackling abuse and improving compliance.  HMRC has also allocated additional resources including 100 new compliance officers and the creation of a new cross-cutting team focused on abuse.  These changes are likely to lead to an increase in the number of enquiries linked to R&D claims and a robust response to erroneous claims, including the imposition of stringent financial penalties. 

If you and your business need specialist advice in connection with an HMRC enquiry please contact us.