It was reported on 17 May 2022 that HMRC has suspended payment of some research and development tax relief claims because it is investigating irregularities. Most R&D tax credit claims will not be affected but some irregular claims are being examined more closely. There will however be delays to the normal processing times while the investigations continue.
Companies claiming R&D tax relief are advised by HMRC to complete all the relevant sections of the corporation tax return and if they also send in additional information such as an R&D report this will enable HMRC to process their claim more quickly.
In recent years there has been increasing concern about the possibility of abusive claims for R&D tax reliefs. As an R&D credit can be paid out, the system can be seen as an opportunity for fraud. The suspicion that doubtful claims to relief are being submitted has been supported by the large increase in claims made in recent years, with the number of claims more than doubling between 2014/15 and 2019/20.
Losses due to fraud or error in claims made under the R&D tax relief schemes have been estimated to amount to as much as GBP 311 million. Owing to the possibility of large revenue losses proposed new measures were announced in November 2021 to combat the risks.
HMRC have already devoted more resources to improve supervision of claims, assigning 100 additional staff to enforce taxpayer compliance with the schemes. A new team is also being created to look at abuse of the schemes. The increase in staff would allow a focus on speculative or abusive claims while continuing to deal efficiently with legitimate claims by tax compliant businesses.
Under the proposals announced last November the company would need to inform HMRC in advance that it was making a claim. The proposed changes would require claimants to give more detail of the expenditure on which the claim is based, the area of science or technology to which the research and development related, and the successes or the nature of the problems overcome by the research. An officer of the company would be required to endorse the claim and details would be required of the agent who advised on the claim. These measures are planned to come into effect from April 2023.