An article today in The Times (19 February 2024), titled “HMRC knew of tax fraud risk but failed to act for at least five years” by George Greenwood, highlights a troubling pattern in the handling of tax fraud within the R&D tax relief scheme. While it is clear that fraudulent claims have been a serious issue, HMRC’s response appears to have swung too far in the other direction, unfairly penalising legitimate claimants.
Interestingly, I also submitted a Freedom of Information request in 2023 regarding HMRC’s compliance checks but encountered obstruction. My aim was to compare the pattern of claim rejections under the then current (2023) compliance regime with those from earlier years when enquiries were conducted by better-trained and more experienced staff. From my own experience, it is evident that many 2023-2024 enquiries have been handled less fairly, and I am confident that the data would support this. If HMRC were to release the evidence, I have little doubt it would reveal a troubling shift in approach. Yet, they refuse to disclose it.
For years, HMRC was aware of fraud risks in R&D tax relief but failed to act decisively. When they eventually did, their approach was aggressive and, at times, indiscriminate. Genuine claimants—businesses investing in innovation—have faced excessive scrutiny, delayed payments, and an adversarial claims process that undermines the very purpose of the scheme.
The problem is not the tightening of controls per se. It is essential that taxpayers’ money is protected, and abuse of the scheme must be tackled. However, many businesses that have followed the rules meticulously now find themselves caught in an overly rigid compliance net. The introduction of stricter rules, including the Additional Information Form and new “volume” compliance checks, has placed a significant administrative burden on companies that simply seek the relief they are entitled to.
More troubling is the culture of rejection and suspicion that seems to have taken hold. HMRC’s response to the fraud revelations has been to treat almost all claims as potentially abusive, leading to extensive delays and, in some cases, rejections that appear to be based on extreme interpretations or stonewalling rather than substance. This is not how a system designed to encourage innovation should function.
The government must strike a better balance. Ensuring that fraud is eliminated is crucial, but so is maintaining a system that works for genuine businesses. If HMRC continues on its current path, the UK risks discouraging the very research and development that it aims to support.
If you have concerns about how these changes affect your business, or need guidance on navigating HMRC’s evolving approach to R&D tax relief, get in touch with us.
Christopher Toms MA MAAT
Compliance Director, RandDTax