2023 was a year of enormous change for the UK’s system of R&D Tax Credits.
A huge increase in the number of HMRC enquiries into R&D Tax Credit claims was followed by a crackdown on so-called “rogue” R&D agents as HMRC belatedly sought to stem the high levels of fraud and error which it believes costs the taxpayer over £1 billion per year.
Having already announced a cut to R&D Tax Credits for SMEs in the 2022 Autumn Statement, the Chancellor confirmed in November 2023 that the R&D scheme for SMEs will be merged with the large company (RDEC) scheme, further reducing the benefit for the UK’s small businesses.
The increased complexity and risk now associated with claiming R&D Tax Credits, combined with the cuts to the generosity, has led many SMEs to consider stopping claiming R&D altogether.
This is a tragic situation which I believe was entirely predictable.
The problems with the R&D scheme had been obvious to many in the advisory industry for a number of years, yet HMRC seemed oblivious to the issues which it had allowed to build up.
Many R&D advisors had the same view, thinking that R&D Tax Credits were a highly lucrative gravy train that would continue to grow exponentially. Many began to believe their own marketing, for example that the Treasury was “sitting on a £84 billion war chest of unclaimed R&D Tax Credits”.
What amazed me was that no one was talking about how this all looked from a Treasury perspective. It was blindingly obvious that something had to give at some point.
This is why I created my R&D Tax Credit Insider Newsletter in March 2022.
I was surprised that no one in the R&D advisory field was taking a step back and asking “is this scheme really working for the benefit of the UK economy?”
Over 47 editions, I’ve documented many of the developments, focussing primarily on the problems created by the R&D advisory industry and HMRC’s ham-fisted compliance response.
I plan to write much more in 2024 but in the meantime I’ve taken a look back at the 8 most popular editions from 2023 just in case anyone missed them at the time. (Click on the title to head to the article).
Do R&D Tax Credit “claim farms” really exist?
I investigated the proliferation of mysterious advertisements on social media platforms which promise “free cash rebates from HMRC” for small businesses.
These adverts are placed by R&D Tax Credit “claim farms,” (or boiler rooms) which use similar practices to the accident compensation industry.
One small business owner, who doesn’t undertake any R&D, was contacted by a telemarketer after responding to advert. Without doing any qualification, the telemarketer said they could provide an estimated R&D claim value based on industry benchmarks rather than actual R&D activities.
HMRC clamps down on R&D Tax Credit “promoter-type activity”
HMRC has acknowledged an annual loss of over £1 billion to fraud and error in its SME R&D Tax Credit scheme.
This article explained how HMRC’s “Anti-Abuse Unit” is now taking action against false advertising by R&D advisors who make untrue statements in their marketing, such as claiming a “100% success rate” or being “recommended, approved, or endorsed by HMRC.”
Can HMRC restore trust in R&D Tax Credits?
This article raised concerns about HMRC’s oversight of R&D Tax Credits, for instance: the inadequate training of staff, a formulaic approach to enquiries and a decline in the skill level of inspectors.
I looked at examples of the misapplication of guidelines and poor administration of complaint processes as well as the flaws in the CIRD manual, HMRC’s questionable commitment to the law and an instance where HMRC refused to appeal a tribunal decision – all of which impact the confidence in the R&D regime’s legal foundation.
Is HMRC losing control of R&D Tax Credits?
Based on interviews with ex-HMRC inspectors, I looked at major concerns around the strained relationship between the R&D Tax Credit advisory community and HMRC’s R&D technical leadership.
Recent years have seen a weakening commitment to operating R&D Tax Credits within the statutory framework, resulting in friction in areas such as HMRC’s response to compliance issues, a lack of scrutiny over smaller R&D claims and inadequate training for staff.
R&D Tax Credits a “honeypot” for rogue agents says HMRC chief
I highlighted the concerns about the credibility of HMRC’s R&D Tax Credit fraud and error estimates, with HMRC Chief Executive Jim Harra admitting flaws in measurement methods as the estimated cost to the taxpayer has surged from £336 million to £1.13 billion.
Harra attributes the abuse to an industry of advisors helping ineligible claimants, calling it a “honeypot”, however there are serious doubts about the accuracy of HMRC’s figures which may in part be due to a shift to a mandatory random enquiry program for SMEs.
Fintech disruptor to exit UK over R&D Tax Credit enquiry
This article highlighted the case of a promising tech start-up that was persuaded to relocate to the UK by the Department for International Trade, in part due to the stability of UK government policy and the generous R&D Tax Credit system for SMEs.
The company thrived, creating jobs and making successful R&D claims until HMRC opened an enquiry into its third claim.
The CEO shared with me the impact of the lengthy and complex HMRC enquiry on the business. The HMRC compliance team’s lack of understanding of the software development process and misinterpretation of R&D scheme guidelines have led to massive uncertainty with the prolonged HMRC enquiry forcing the company to re-plan its future, shutting down its UK R&D activity and relocating the jobs overseas.
R&D Tax Credits: when is enough actually enough?
This explosive guest article, written by Tim Walsh CTA MBA, looked at concerns about HMRC’s new approach to R&D Tax Credit compliance checks.
Tim questions HMRC’s fairness in deeming that a client with over thirty years of industry experience was not a competent professional in the field, as well as HMRC’s refusal to meet with company management and technical experts.
HMRC clamps down on R&D Tax Credit “promoter-type activity”
The article discussed the rise of questionable R&D Tax Credit advisory agents which target sectors with minimal genuine R&D.
HMRC is now addressing this “promoter-type activity, by contacting over 80 R&D advisors to remove misleading claims such as those implying a “100% success rate” or that they are somehow endorsed by HMRC.
Article written by Rufus Meakin
Rufus Meakin helps companies prepare complex R&D Tax Credit claims where robust HMRC compliance is essential.
If you would like to discuss any aspect of your R&D Tax Credit claim then please feel free to call me on 0794 110 3285.
Content by Rufus Meakin (R&D Tax Credit Insider Newsletter)
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