Save content
Have you found this content useful? Use the button above to save it to your profile.
image of scientists at work | accountingweb | HMRC called out over ‘ruthless’ R&D tax relief raid
iStock_sanjeri_research

Innocent SMEs caught up in ruthless R&D clampdown

by

Thousands of small businesses that benefitted from research and development tax relief are being erroneously swept up in a fraud crackdown by HMRC, accounting experts have warned.

13th Mar 2024
Save content
Have you found this content useful? Use the button above to save it to your profile.

The tax inspectorate is attempting to claw back an estimated £1.3bn of wrongful research and development (R&D) allowances – however many innocent claimants are receiving bills that may sink their businesses.

R&D tax credits were introduced by the government in 2000 as a reward for small and medium enterprises (SME) that invested in innovation.

Abuse of the system, complex rules and lax scrutiny by officials handing out tax breaks over the years has led HMRC to reassess around 20% of the total number of claims after underestimating the levels of error and fraud that have crept in.

Officials are making increasingly granular and “ruthless” requests of claimants, demanding technical documentation and detailed explanations, and rejecting claims despite having little basis to do so, AccountingWEB was told.

Overly zealous

Concerns began to mount last July that HMRC was being overly zealous in rejecting legitimate claims

Register for free to continue reading

It’s 100% free and provides unlimited access to the latest accounting news, advice and insight every day. As well as access to this exclusive article, you can:


Content lock down, tick icon

View all AccountingWEB content


Content lock down, tick icon

Comment on articles


Content lock down, tick icon

Watch our digital shows and more

Access content now

Already have an account?

Replies (16)

Please login or register to join the discussion.

avatar
By Justin Bryant
13th Mar 2024 11:12

How long ago did Awebers warn publicly here of this widespread R&D cowboy/fraud problem? At least 7-8 years ago I reckon and this is the inevitable reckoning from HMRC's tardiness in dealing with it. See for example the numerous warning comments here nearly 7 years ago:
https://www.accountingweb.co.uk/tax/business-tax/british-businesses-unlo...

Incidentally, whatever happened to Francois?

Thanks (9)
Replying to Justin Bryant:
By Duggimon
13th Mar 2024 12:10

100% agree, a complete inability to act with any speed, followed by massive ill advised overreaction, then a failure to recognise the problems they have created - the three steps to all of HMRC's enforcement initiatives.

Thanks (9)
Replying to Justin Bryant:
avatar
By FactChecker
13th Mar 2024 19:35

Might well also ask whatever happened to Simon@CoodenConsulting who was the cheerleader in that thread for the 'better than sliced bread' brigade?

I wasn't reading or contributing to Aweb 10+ years ago, but was already tripping up over the 'promoters' - with my initial concern (before we even got to whether the claims proposed were either in line with the scheme's objectives or were just economical with the truth) being their contract terms.
Like the worst kind of shysters, these terms usually gave them 'rights' to a major portion of any future successful claims made by the company (even where their involvement in these later claims was zero).

And then I started to look at some of the 'successful' claims - particularly those from companies making losses and so receiving a free cash injection from HMRC.
Fewer than 10% sort of met the criteria (as in didn't immediately and obviously fall at the first hurdle), but nearly 90% were being 'approved'.

Of course HMRC doesn't and wasn't actually giving approval ... just paying up whilst reserving the right to reconsider sometime in the future.
It looks as if, finally, some of the HMRC chickens have remembered that they have a roost to which they can return ... and are starting to do so.

Thanks (8)
Replying to FactChecker:
avatar
By johnjenkins
14th Mar 2024 09:32

"Of course HMRC doesn't and wasn't actually giving approval ... just paying up whilst reserving the right to reconsider sometime in the future."
This is exactly what that they have done with Tax Avoidance schemes.

Thanks (1)
Replying to Justin Bryant:
avatar
By BrianL
14th Mar 2024 09:32
Thanks (1)
avatar
By AndrewV12
14th Mar 2024 09:26

He said the chaos in the scheme was caused by three factors: HMRC was historically too trusting of applications; some advisers took advantage of the weak oversight and flooded HMRC with large numbers of ineligible claims; and the tax inspectorate’s attempt to clean up the mess isn’t targeted enough to treat legitimate claimants fairly.

HMRC is always off the pace.

Thanks (0)
Replying to AndrewV12:
avatar
By Justin Bryant
14th Mar 2024 09:35

But HMRC are worse than off the pace. That's being far too generous. HMRC don't even bother reading or acknowledging Awebers' incisive warning comments in the first place is the main problem here as noted by me above.

If I was in charge of HMRC tax fraud prevention I'd want at least a weekly/monthly report of such material public tax fraud warnings/alerts (and of what action was being taken etc.). Wouldn't you?

Thanks (2)
Replying to Justin Bryant:
avatar
By Springfield
14th Mar 2024 10:50

I would, you would, but HMRC? Maybe not so much.

Thanks (2)
avatar
By mhkay
14th Mar 2024 09:55

We're a highly innovative and tiny software company and we've been benefiting from this relief for years. What I've found amazing is how little evidence we have been required to submit, so it's not at all surprising that the system has been ripe for abuse - and in the last couple of years we've been deluged with approaches from consultants who are effectively offering help in abusing the system. So a clampdown is long overdue, but we're certainly worried about whether we will have enough solid data to back up our claims in future.

(But there's another odd thing about this scheme: because it's a relief from a tax on profits, you only get anything from it if you are already profitable. Where is the help to turn innovative ideas into profitable businesses in the first place?)

Thanks (1)
Replying to mhkay:
avatar
By Rob Swan
14th Mar 2024 11:33

With you there mhkay.
Methinks the sceme's original motivation was from large corporations - who stand to benefit most - and have the funds to 'oil the right palms' in the relevant places in Whitehall.
But what do I know?
Quite a few Gov't schemes - including benefits - pay out freely and then, sometimes after changing the rules retrospectively (IR35), demand money back. Take anything from Gov't these days and there's every possibility you'll be required to return it when some random person inside HMRC can't balance their spreadsheet.

Thanks (0)
Replying to mhkay:
By Ruddles
14th Mar 2024 12:52

mhkay wrote:
because it's a relief from a tax on profits, you only get anything from it if you are already profitable.

Not so

Thanks (3)
Replying to Ruddles:
avatar
By FactChecker
14th Mar 2024 14:14

Quite ... hence my comment above:
"And then I started to look at some of the 'successful' claims - particularly those from companies making losses and so receiving a free cash injection from HMRC"

Makes me wonder about the depth of knowledge of some pontificators on this topic.

Thanks (4)
avatar
By Springfield
14th Mar 2024 11:08

Let's see if there's a pattern here?

Does it have "Saviour of the World" Gordon Brown's finger prints on it? - check
Complex rules - check
Opportunity for the unscrupulous to make some serious dosh -check
Claims paid by HMRC without adequate checking - check
HMRC not responding to obvious alarm bells - check
Allowed to continue for many years - check
HMRC finally wake up and decide to adopt a scorched earth policy - check
Innocent caught up whilst the guilty have long gone - check

Sigh.

Thanks (3)
avatar
By Justin Bryant
14th Mar 2024 11:41

Looking at page 257 here, HMRC have basically lost taxpayers c£1bn+ p.a. for several years by simply totally ignoring Awebers' well-publicised warning comments.

https://questions-statements.parliament.uk/written-questions/detail/2024...
https://assets.publishing.service.gov.uk/media/64e34f1c3309b700121c9baa/...

HMRC could have paid someone £50k p.a. to do that very simple monitoring work in order to identify, investigate and duly report on those highly prescient comments (with the expectation that prompt counteraction would thereby be taken). I recall HMRC's operating budget is c£5bn p.a. Nuff said!

Thanks (0)
avatar
By Joe Robinson
16th Mar 2024 14:05

‘Ruthless’ R&D clampdown - I wish!

This issue is a scandal. I never thought I would say this, but, in this case ‘go for it HMRC’.

Thanks (0)
avatar
By David L Marshall
19th Mar 2024 10:18

I suggested years ago that the minimum claim level for R&D Tax Relief should be reintroduced after it was removed. I still fail to understand how a company can seek an advance in science or technology, that is acknowledged as an advance above the baseline for the industry not for the company alone, that cannot be readily deduced by a compentent professional in the field, and while overcoming technological or scientific uncertainty for £15K a year... My long held belief is that the minimum eligible spend threshold should be £50K a year and for start ups doing something amazing should have better access to Innovate UK funding and apply for that. Not R&D Tax Credits R&D Tax Relief or now the combined scheme and ERIS. This would delete tens of thousands of claims and save the government purse some £1bn a year without all this nonsense. The spurious companies that have created a cottage industry using wolf on wall street sales tactics have no place in this profession and some, thank goodness, have left the market. This policy was intended to support genuine R&D in the UK but has regrettably become a shambles, putting professional body members and advisors in a poor light. The CIOT says an advisor should only advise if they have "competence to act" in my view this means an advisor with no technical understanding should seek help from an advisor that has. This government support is welcomed when properly targetted and efficiently run. We can but hope.

Thanks (0)