As of October 6, 2023, HMRC has intensified its scrutiny, investigating a higher number of claims and imposing more compliance checks, penalties, and even arrests. The mandatory random enquiry programme (MREP) analysed a sample of 500 SME claims, uncovering alarming results.
Key findings from the report include:
- Nearly 50% of investigated claims exhibited errors or fraud.
- 5% of claims had no qualifying R&D and were disallowed.
- In 19% of cases, qualifying R&D occurred but with inflated costs.
- Claims under £10,000 showed over 75% non-compliance, rising to 90% with agent involvement.
HMRC's Changes to the R&D Tax Relief Scheme
Over the last three years, HMRC has bolstered staffing in small business compliance by approximately 300 individuals, focusing on education and criminal investigations. A dedicated R&D Anti-Abuse Unit was established in the summer of 2022 to tackle abuse of the scheme.
Measures implemented since August 2023 to counter non-compliance include
- Digital submission of all claims for effective risk assessment.
- Mandatory Additional Information Form (AIF) for each claim to target higher-risk claims.
- Reduction of payable relief in the SME scheme to £20,000 plus 300% of the company’s PAYE NICs liability.
- Requirement for SMEs to submit details of a named company officer to prevent unauthorized claims.
- Declaration of involvement of an accountant or R&D agent when submitting a claim.
- Prenotification of claims to reduce historical claims, allowing focus on recent ones.
The importance of ensuring that clients understand R&D from HMRC’s perspective cannot be overstated. This awareness minimizes the risk of a compliance check leading to claim disapproval, financial penalties, or criminal charges.
Protecting Your Client
- Initiate eligibility discussions, considering HMRC’s narrowed scope for eligible R&D activities.
- Clearly display HMRC’s definition of R&D on your company website.
- Ensure clients are registered on Companies House with an accurate SIC code.
- Clients must be involved in every step of claim preparation, as the responsibility rests with them.
- Be aware of potential penalties for careless or misleading information during compliance checks.
While HMRC’s new measures may seem daunting, they aim to target dishonest providers. Quality R&D services can still effectively prepare and submit claims, with additional resources available for assistance. Our Red Flag Checklist and Enquiry Guide can help navigate the process, identifying common pitfalls and necessary information during compliance checks.