Tax crackdown heralds new R&D relief headaches
13 Aug 2023
Science research and development tax relief applications will now face an extra hurdle thanks to new Government rules introduced this month.
Accountancy advisory firm BDO says that the new measures introduced by HMRC, that came into force on 8 August, are designed to combat fraudulent claims and those with significant errors.
HMRC recently put the cost of faulty or illegal applications to one of the two relief schemes at £1.04 billion during 2020-21 alone.
Now, all businesses or R&D consultants will need to complete an ‘Additional Information Form’ within their claims, a move intended to disclose the likely level of financial expertise informing the application, says BDO.
Data will then be extracted in order for HMRC to risk-profile applicants according to claim size and business sector.
HMRC appears to have been caught unawares of the scale of fraudulent or erroneous claims, having previously estimated these to amount to 3.6% of all applications.
The most recent analysis by the Revenue of the two existing R&D relief schemes – the Research and Development Expenditure Credit (RDEC) and the small or medium enterprises (SME) R&D relief schemes – suggested in fact that it was nearly five times higher, with 16.7% of claims being faulty, whether by accident or design.
Innovation Incentives partner at BDO Carrie Rutland remarked: “For the many businesses that are genuinely carrying out ground-breaking R&D, the changes being introduced from today may seem overly bureaucratic, particularly for large groups submitting multiple claims.
“However, given the high estimated levels of error and fraud associated with R&D claims, it’s no great surprise that HMRC is keen to clamp down on non-compliance.”
She added that HMRC recently hired 300 new officers for its R&D team as new requirement is due to be followed by further reforms to the UK’s research and development regime.
In July, Downing Street announced draft proposals to merge the RDEC and SME relief schemes, in order to simplify the system but also to reduce the administrative cost to the Exchequer.
Rutland warned: “There is a danger of going too far too fast. This could create more uncertainty and result in the UK becoming less attractive to inward investors.”
