HMRC says 25% of R&D Tax Relief Scheme Disbursements are Unaccounted For


HM Revenue & Customs has calculated that in the 2020-21 financial year, £1.1 billion was taken due to fraud and mistakes from two separate programs targeting both larger and smaller companies.

The tax authority has acknowledged that a quarter of the funds provided through a multi-billion tax relief program were lost to fraud and mistakes.

HM Revenue & Customs has significantly increased their estimate of losses stemming from error and fraud for research and development tax incentives for small and mid-sized firms from 2020 to 2021, with a shocking figure of 24.4 per cent being calculated — one of the highest rates of loss across any government spending programme, including Covid-19 emergency schemes.

The National Audit Office’s comptroller & auditor-general, Gareth Davies, qualified his opinion of HMRC’s annual accounts when they were published yesterday, due to the issue at hand.

The prediction of Lord Agnew of Oulton was that “no one from the government would be brought to task over this debacle”.

Agnew of Oulton, a past counter-fraud minister, commented: “This instance is another example of the incompetence that pervades the halls of Whitehall.

Justin Arnesen, Partner in the R&D Tax team at Evelyn Partners comments: “R&D tax reliefs are instrumental in encouraging businesses to invest in R&D, which brings broader benefits to the UK economy in the form of developing new products and creating jobs. However, this latest update from HMRC highlights the size of the problem that HMRC is tackling in its attempts to combat fraud and error within the system.  Concern over abuse and boundary-pushing has grown in recent years, and HMRC has introduced a number of measures, including more than doubling the number of people working on R&D compliance and setting up a dedicated R&D Anti-Abuse Unit, to crack-down on unscrupulous advisers and fraudulent and erroneous claims for R&D tax reliefs.

“Improved guidance is part of the wider plan to reduce error and fraud within the R&D regimes, and HMRC has committed to making further improvements as part of its plan. To have an impact, however, considerable changes are required, particularly to guidance around ‘modern/relatable examples’ of both qualifying and non-qualifying activities. This is important as technology is moving at an unprecedented pace – the R&D Guidelines have a qualification example pertaining to the development of a DVD player, for example, this technology is obsolete and provides little relatable guidance/reference points for taxpayers.  Guidance improvements will need to be accompanied by plans to bring HMRC caseworkers up to speed on both the new guidance and the technical qualification criteria.

“To tackle this worrying problem, a range of additional changes have been introduced.  These range from requiring additional information from the claimant and requiring claims to be made digitally, to reducing the amount of payable relief in the SME scheme.  Some of these changes are already in place and others come into effect from August 2023.  Even though HMRC will share a further update on its approach to improving compliance with R&D tax reliefs in winter 2023, given the 2 year time lag on the estimates, we may not know for some time whether these measures have had a meaningful impact.  It may be that additional measures, such as requiring additional information directly from advisers, or an annual adviser audit, will need to be considered.”

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HMRC says 25% of R&D Tax Relief Scheme Disbursements are Unaccounted For