HMRC to clamp down on businesses fraudulently claiming R&D relief
Released On 22nd Sep 2024
HM Revenue & Customs (HMRC) has said it will take “decisive action” against business owners who they believe have fraudulently claimed against the Corporation Tax Research and Development tax relief scheme or the Research and Development Expenditure Credit.
The schemes, which merged in April 2024 to form one single research and development (R&D) scheme, were designed to reward companies investing in innovation and new ideas, such as those working on cutting-edge projects in science and technology. The reward came through a rebate of up to 27 per cent of costs, which they could use to help them sustain and grow the business.
However, according to HMRC, the system has been abused over recent years and at the height of the pandemic, more than £1 billion was lost to error and fraud in tax relief out of £7.6 billion claimed for the 2021-22 tax year.
In November 2022, a House of Lords committee was told that dishonest business owners were taking advantage because computers automatically approved any claim. That said, earlier this year, several business owners have complained that having legitimately claimed the tax breaks, they have now been asked to repay the money to the taxman.
HMRC said in a statement that it recognises “the importance of R&D in driving innovation and economic growth” but is determined to ensure that the claims process is straightforward for genuine claimants.
As Roger Isaacs, Forensic Partner at Milsted Langdon explains “R&D tax credits, as the name suggests, are usually the preserve of specialist tax accountants. However in the most extreme cases of fraud, forensic accountancy evidence may be needed, especially if assets need to be traced for the purposes of proceedings that have been issued under the Proceeds of Crime Act.
The R&D rules are complex but it can sometimes be difficult to believe that a taxpayer held an honest and genuine belief that it was investing to make a scientific or technological advance. One such example was the case of a claim made by a restaurant for the cost of developing a new recipe!”
