In a recent disclosure accompanying its 2022-23 annual report, HMRC has raised eyebrows by revealing that nearly half of all R&D tax claims made by SMEs are at least partially non-compliant ...
Also, an R&D Anti-Abuse Unit was established in July 2022. HMRC has also initiated several proactive measures, such as sending 'nudge letters' to companies, encouraging them to comply before filing their tax returns.
HMRC's data indicates that the overall level of error and fraud in R&D claims for the 2020/21 tax year was 16.7%, a significant jump from its previous estimate of 3.6%. Interestingly, smaller claims (those with R&D expenditure of less than £10,000) had the highest level of non-compliance, accounting for 78% of the relief claimed in that bracket.
Compliance rates varied widely across different sectors. For instance, the education, arts/entertainment, and construction sectors had compliance rates of 11%, 38%, and 38% respectively, while public administration and defence boasted a 75% compliance rate!
HMRC plans to introduce an additional information form for all claims submitted after the 1st of August, 2023. This will mean they can better assess the risks and gather more details on R&D activities.
They will also collaborate with industry representatives to refine their approach further.
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