HMRC Aims to Reduce Abuse of the R&D Schemes

Due to a growing concern that the R&D tax relief scheme was being abused, either intentionally or unintentionally, HMRC conducted a review and consultation in 2020/21 that covered both R&D tax relief schemes - the Research and Development Expenditure Credit (RDEC) and the small and medium enterprises (SME) R&D relief.

HMRC have hired an additional 100 new caseworkers to allow more claims to be reviewed. Additionally, some of these individuals are technical specialists, able to understand the nuances of complicated technical detail. Naturally, these additional caseworkers will have contributed to the increases seen in the number of enquiries raised by HMRC recently.

From April 2023, HMRC intend to implement the following changes, which have been lifted directly from the HMRC R&D Tax Reliefs Report:

• All claims to the R&D reliefs – either for a deduction or a tax credit – will in future have to be made digitally (except from those companies exempt from the requirement to deliver a Company Tax Return online).
• These digital claims will in future require more detail – for example, on what expenditure the claim covers, the nature of the advance sought, the field of science or technology, the uncertainties overcome.
• Each claim will need to be endorsed by a named senior officer of the company.
• Companies will need to inform HMRC, in advance, that they plan to make a claim.
• Claims will need to include details of any agent who has advised the company on compiling the claim.

Having to submit claims digitally will make things quicker and easier for HMRC, resulting in more claims being reviewed and potentially more enquiries launched.

Having to include much more detailed information regarding the activities and costs that have been included should make those compiling the claim take a moment to really consider whether or not something should be included. This requirement should deter individuals from attempting to include items that they know are not eligible.

Insisting that a senior officer of the company endorse the claim makes them responsible for ensuring that a claim is compliant and perhaps question the individual/company providing the claim service a little closer than they might have done otherwise. Additionally, should HMRC launch an enquiry and the claim is found to be not compliant, then the individual that endorsed the claim will be liable, just as like they are for other areas of their professional responsibilities to the company.

Companies having to inform HMRC in advance that they intend to make a claim might present some challenges, but until HMRC reveal more detail, we will just have to wait and see.

Probably the most uncomfortable for those individuals/companies that prepare claims and sail a little too close to the wind, is the requirement for the claim to include the details of the agent that advised the company in compiling the claim. Again, a good requirement in that it ensures that individuals take responsibility and ultimately held accountable should HMRC launch an enquiry that finds the claim to be bogus or the rules have been applied incorrectly.

The bottom line is that HMRC are keen to eradicate as many fraudulent claims as possible, many of which are probably as a result of unscrupulous “advisors” encouraging companies to make a claim based on the promise of a large payday. Hopefully, these new requirements will help to clean up the R&D Tax Relief Claim industry by discouraging those out to make a quick buck or two, which ultimately can only be to the betterment of the industry as a whole.

Download a copy of the HMRC R&D Tax Reliefs Report HERE.