As most companies know, the level of non-compliance with respect to R&D tax credit claims has grown. Therefore many more compliance checks are being dished out within the R&D Tax Credit programme by HMRC. The latest analysis has shown us that the level of fraud and errors in the R&D Tax Credit programme, for both the SMEs and the RDEC scheme, has increased significantly from the previous year.

Non-compliance also includes filing for R&D projects that are ineligible under the R&D tax credit criteria.

The latest HMRC Statistics showed us the following:

  • For the period 2021-2020  it is now estimated that  16.7% (£1.13 billion) of claims were in error or fraudulent. Compared to the original published estimate of 3.6% (£336m)   
  • HMRC had detected fraud indicators in less than 10% of claims reviewed.
  • SMEs take up the majority of the non-compliance claims.

Between 2015 – 2016, 43,665 claims were submitted adding up to £4 billion. The number of claims increased to 89,300 totalling £6.6B for 2020-2021. When we look at the R&D claims over the past few years, we can see how the programme has effectively doubled. Therefore HMRC are on a campaign to identify what is compliant and what isn’t.

HMRC has over the past 3 years employed 300 more staff. This is to tackle the level of non-compliance R&D claims that are being submitted. The programme is exponentially increasing. Now HMRC is in a battle to reduce the number of R&D claims being submitted and penalise the companies who are boundary-pushing.

Apart from fraudulent behaviour, HMRC reviews whether penalties need to be imposed any time they seek to deny all or part of an R&D tax credit claim. Once a claim is submitted, you cannot simply retract it once HMRC starts its query or review.

The letters issued by HRMC on an R&D tax credit query are quite lengthy and typically request a substantial amount of information. Some letters also state that HMRC does not believe the R&D projects qualify based on what was submitted.

In terms of fraudulent claims, the R&D Anti-Abuse Unit has been set up and carried out the following:

  • 9 people have been arrested.
  • 2,500 claims have been suspected of fraud.
  • Found £85 million worth of fraudulent claims.
Non-compliance in the R&D Tax Credit programme

Given the current environment, every company needs to ensure they understand what qualifies as R&D. Companies will also need to understand how to complete the new forms required by HMRC. If the questions are not properly addressed, HMRC now has a more robust procedure to catch these non-compliant claims.

One thing to try and remember when working on an R&D project is that there must be technological uncertainty to qualify. This specific criterion is very misunderstood.  

Also, social science – including economics, the arts and humanities are NOT identified as an R&D project. So, if you are in the area of data analysis or economic algorithmic predictions, you need to ensure your R&D claim falls into the hard science categories of computer science or mathematics.

Have questions regarding the non-compliance procedure? Let RDP help!

If you are an accounting firm and would like help with your clients to identify eligible R&D work and prepare the new R&D tax credit forms, speak to us today and RDP can help, guide and advise your firm in the correct way.

Or maybe you are a company that still isn’t sure if you are eligible or need help with the new HMRC forms and procedures. If so, please contact the team at RDP. We can tell you usually within a half-hour if you are and how much tax credits you could potentially receive.

We are here to help every step of the way and take the pressure off you and your company. Contact our team today on 0208 214 1341 or email Jenni on [email protected].