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HMRC: Problems with SME Research and Development claims

At least half are non-compliant ...


Posted by Roger Eddowes on 04/09/2023 @ 8:00AM

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 ...

HMRC will collaborate with industry representatives to refine their approach further!

HMRC will collaborate with industry representatives to refine their approach further!

copyright: flynt / 123rf

This comes at a time when R&D claims have dramatically increased, rising from 43,665 claims worth £4 billion in 2015/16 to 89,300 worth £6.6 billion in 2020/21. Due to the surge in claims, HMRC has needed to revamp its approach to handling them.

"The number of staff dedicated to R&D compliance has doubled!"

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.

Until next time ...

Business Godparent


Would you like to know more?

If anything I've written in this blog post resonates with you and you'd like to ensure your R&D claim is fully compliant with HMRC, it may be a great idea to call me on 01908 774320 and let's see how I can help.

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About Roger Eddowes ...


Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.

Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.