Our in-house R&D tax credits specialist, Corporate Tax Director Shehzad Ashaq, looks at how R&D changes have impacted claims.
Research and development (R&D) tax relief is a generous incentive that supports companies to invest in innovative projects in science and technology. This relief has been a vital source of support for businesses.
You can find out more about R&D tax credits here.
For a number of years there has been serious concern over non-compliance in R&D tax reliefs. HMRC needs to ensure that companies who are eligible for these reliefs are able to access them while protecting taxpayers’ money from abuse.
New administrative procedures were brought in since 2021 to try and curb non-compliance and fraudulent claims. The factors introduced were as follows:-
The question that arises is, what impact has the above had on the R&D claims since the introduction of the above measures?
HMRC’s R&D statistics published in September 2024 and the Corporate Report: Approach to Research and Development tax reliefs 2023 to 2024, published on 30 October 2024 highlights some interesting facts.
There was an overall reduction in claim numbers from 83,240 in 2021/22 to 65,690 in 2022/23. There was a larger reduction in SME claims which reduced from 71,905 in 2021/22 to 55,325 in 2022/23. This represents a drop of around 23%.
This is a significant decrease and begs the question as to whether the number of genuine claims have reduced or has the reduction arisen from speculative, incorrect, fraudulent claims.
Some SME’s see the R&D relief as a vital source of funding and this support essentially funds the next round of their research and development. Any superficial barriers or discouraging factors for genuine claimants can only hinder innovation.
It is interesting to see that in 2021/22 of the £7.6 billion claimed, the overall level of error and fraud was £1.3 billion which is around 18%. Of this £1.2 billion was in the SME sector. HMRC’s enquiry programme states that around half of the SME claims were non-compliant in part or in full, and 30% of claims were non-compliant in full.
HMRC have increased the number of claims it enquires into, increasing the enquiry rate from 10% of all claims in 2022/23 to 17% in 2023/24. The average length of time taken to deal with enquires is reported to be 269 days in 2022/23 and 246 days in 2023/24. This is a long period of uncertainty for claimants and is likely to be another factor discouraging legitimate claimants from making a claim.
Although the actions taken to tackle non-compliant and fraudulent claims is necessary, care should be taken to ensure legitimate claims are supported and not deterred.
As we all know the R&D relief is an incentivisation scheme not a tax avoidance scheme and it should be openly available to businesses carrying on genuine innovative projects.
Have you carried out research and development and want to benefit from R&D relief? Don’t let barriers stop you from claiming R&D tax relief.
Get in touch with us today.
We have an excellent track record with our R&D service offering and are happy to support businesses with their claims.
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