There have been 3 distinct periods with specific themes for the R&D schemes.
2002-2009 –Little was known or understood by most companies or accountants about the schemes and there were few claims. Significant core legislation was passed. The 2009 Corporation Tax Act and the DTI (Now BIS) Guidelines 2004 still being central today.
2010-2018 –The theme was promoting/simplifying claiming. The HMRC digital marketing arm even ran campaigns. Claims were simplified through reforms in the 2012 Corporation Tax Act (CTA 2012) and initiatives like the HMRC Simple Guide to R&D Tax Relief. Notably, CTA2012 abolished a cap on payable SME credits based on NIC/PAYE. This was a period when, with strong encouragement, the R&D schemes took off and confidence in their positive economic impact grew.
2018-Present– A concern has emerged about abuse of the schemes including both fraud and error. A number of high-profile frauds have been prosecuted and led to jail sentences. This has led to reforms to prevent fraud like the 2021 cap on payable R&D Tax Credits, based on company NIC/PAYE, with more changes due in 2023. Confidence in claiming established in 2012-2018 has in some ways diminished. This upsets anyone who believes in the greater good of the schemes in driving real innovation, especially in the SME sector, as we strongly do.
This year, it has emerged that organised crime has taken another run at the R&D Tax schemes. In 2018 one very large fraud involving £29.5 million was successfully prosecuted. This led fraudsters to pivot to a large number of smaller frauds. At the end of October 2022, 8 were arrested for involvement in these frauds. Ironically, had the cap on payable R&D Tax Credits not been abolished in 2012 neither of these types of fraud would have been possible. The 2021 cap was structured differently, but the abolition of the cap in 2012 did help many SME’s make genuine beneficial claims.
Frauds are not just an R&D Tax theme. Look at what happened with the COVID schemes, benefits fraud, and working tax credit fraud. Anywhere the Government distributes money, the risk of fraud exists. It is a much wider issue than only frauds relating to the R&D Tax schemes. Some potential answers seem rarely considered:
A massive investment is needed in machine learning technology across HMRC to tackle fraud and give the taxpayer a system that is fit for purpose. HMRC seem behind compared to sectors like banking, social media, and mobile communications; and could learn from those sectors. HMRC should be able to identify the footprints of genuine companies and potential fraudsters much more effectively, with few false positives, rather than eventually stumbling across frauds within the much larger number of genuine claims.
I would also like to see cold telemarketing and spam email marketing banned for all tax related services. These often throw very broad false nets to try to catch prospects. No doubt some using these tactics are then correcting course later, and following the Guidelines and Legislation, but some do not. These false narratives empower poor judgments, errors, and fraud. Some using this approach are just phishing schemes to commit or assist tax fraud.
We work hard to give the correct advice, explain the schemes, question wrong assumptions/judgements and specialise only on this. If you would like to talk to us about any potential R&D claim, make contact.
About the author and RandDTax business. Terry Toms qualified in banking, spent 10 years in the embryo IT industry finally having UK responsibility for accountancy profession software, then ran the UK/Irish subsidiary of an international accountancy profession software company. He spent 10 years advising SMEs on R&D tax claims and was part of the software industry trade body’s R&D Tax Committee before founding RandDTax in 2012. RandD Tax now has 22 shareholders, including 12 Directors, 3 of whom have UK tax or accountancy professional qualifications. All shareholders are very active in the business, so RandDTax is owned by those who deliver services. Since 2012, RandDTax has advised and assisted more than 1550 clients, mainly SMEs, with in excess of 5,000 R&D related claims covering both SME and Large Company schemes.