A crackdown on suspected Research and Development (R&D) tax credits fraud by HM Revenue & Customs (HMRC) has led to a fall in claims for the first time.
The value of R&D tax credits relief claimed by UK businesses has fallen by £275 million in a year.
But R&D tax credits play an important role in the UK economy as they give businesses an incentive to improve productivity and drive innovation.
They work by either reducing a company’s liability to Corporation Tax or by making a payment to the company. The rate of relief depends on whether a company is an SME or a large company
But new research has found that the value of claims fell by four per cent from £6.9 billion in 2019/20 to £6.6 billion in 2021/21.
Following a rise in suspected fraud in 2020, HMRC took a more robust approach by increasing the scrutiny and delaying approval claims for R&D tax credits.
The majority of irregular R&D tax credit claims are usually based on innocent and genuine mistakes, but the penalties can be serious.
In many cases, businesses are acting on the advice of unscrupulous R&D agents who do not have the requisite experience or qualifications. HMRC has been empowered to tackle these rogue tax advisers.
To benefit from R&D tax credits, you must:
Work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology.
The relief allows companies to reduce their corporation tax bill based on the money spent by the business on research and development projects.
R&D grants cover several areas including:
The drop in R&D claims approved comes following a wave of suspected misuse of the R&D credits schemes in 2020. HMRC is now attempting to clamp down on ‘error and fraud’.
HMRC extended the deadline for processing R&D tax credits from 28 days to 40 days in June 2022 due to ‘increased scrutiny’.
Need help with R&D tax credits or related matters? Contact us.
