Recently, the Chief Executive of HMRC was under pressure from the House of Commons Treasury Committee surrounding R&D Tax Credit fraud and error.
He was asked to explain how R&D Tax Credit fraud and error had all of a sudden increased from £336 million to £1.13 billion. The Chief Executive admitted that they underestimated the level of fraud and error within the R&D Tax Credit Programme.
He explained that they thought they had the best method to measure the number of eligible R&D claims. But since doing random enquiry checks, they realised that the method was wrong, and the level of fraud and error was much higher than expected – 50% of R&D claims contained some sort of error.
Random Compliance Checks
The method HMRC used was to start randomly checking 500 R&D claims, which gave rise to the figures in non-compliance checks. This is the highest number within the SME scheme which is estimated at 24.4%. This has now resulted in HMRC hiring 300 new inspectors to look at many more R&D claims.
What needs to happen now to solve the R&D Tax Credit fraud and error situation?
Working with tax agents more closely is another factor that must be addressed to make the process more valuable. Also, HMRC has committed to making improvements to guidance and showing examples of eligible and non-eligible R&D claims.
This, along with more compliance checks being carried out, should decrease the amount of fraud and errors.
Here are some examples of the new rules that came in 2023:
- Companies now have to file additional information through the government portal, setting out a project description as to how the project meets the R&D tax credit criteria.
- Claimants who are making an R&D claim for the first time or after 3 years of making a previous R&D claim, have to notify HMRC that they are making a claim within 6 months of the end of that accounting period.
What should you do next?
RDP Associates Inc. (“RDP”) knew this situation would happen, as the previous level of HMRC compliance checks was not robust enough to warrant against companies pushing the boundaries of R&D. Our technical staff are highly qualified scientists, engineers and communication specialists that have significant experience in all areas of industry who can properly assess and qualify an eligible R&D project. They also have experience in handling the tax authority’s review of R&D claims. In fact, many other tax regimes employ their own technical staff who challenge the R&D claims. However, RDP’s knowledgeable and experienced technical staff are more than capable of dealing with any HMRC queries or checks.
So, if you are worried about R&D Tax Credit fraud and error? Or would like to find out more about our capabilities, service, and fees, please do not hesitate to contact our team today at 0208 214 1341 or email Jenni at [email protected].