Nearly half of R&D tax relief claims invalid since August submission change

SOUNDING THE ALARM: Nick Woolfe, R&D Tax Partner at top 10 accountancy firm Azets
SOUNDING THE ALARM: Nick Woolfe, R&D Tax Partner at top 10 accountancy firm Azets

Companies in the UK risk falling foul of a new regulation involving the submission of tax relief claims for research and development, it emerged today.

Nearly half have already had their claims declared invalid by HMRC since the new documentation requirement came into effect from 8 August.

The alert has been sounded by Nick Woolfe, R&D Tax Partner, at top 10 accountancy firm Azets.

He said: “What companies will start to see is the bite from some of the previously announced compliance changes to R&D tax relief claims.

“Tax reliefs for R&D spending from the beginning of April 2023 have reduced, and many innovative SMEs preparing year-end accounts for financial periods which run beyond that date will now begin to feel the impacts from the reductions.

“We also know from HMRC that nearly half of claims submitted since 8 August, when the new mandatory additional digital information forms were introduced, have been completed incorrectly.

Companies that have not complied with the new forms will soon begin receiving letters from HMRC saying their R&D claim is invalid unless they amend their returns. This may be do-able for some but for those who have left it all to the last minute it could mean that their claim is lost forever.”

In a recent letter sent to agents, HMRC stated that almost half of all claims received so far between 8 August and 3 September have been submitted by customers without the required AIF.

It is not known how many companies have had their claims knocked back between 8 August and 3 September; Nick said there could thousands, given that there were 89,300 R&D claims in the UK for the tax year 2020-21.

Nick, who works with SMEs across a range of sectors, said earlier this year that new administrative regulations are designed to weed out erroneous and fraudulent R&D claims.

As part of its campaign to identify malpractice, HMRC stated that from August businesses submitting R&D tax relief claims needed to provide much more information than previously.

HMRC investigations into R&D tax relief error and fraud have significantly increased, particularly over the last couple of years, to combat a boom in unregulated R&D tax consultancies and with the additional financial burden of R&D tax credits falling upon the Treasury since Brexit implementation.

The overall level of error and fraud for both R&D tax relief schemes (SME and R&D expenditure credit) across all sectors of the economy was estimated to be £1.13bn for 2020-21. That is equivalent to 16.7% of claims, significantly higher than HMRC's previously published estimate of 3.6%.

Latest available figures from the Office for National Statistics show that expenditure on R&D that was performed in the UK in current prices was £61.8 billion in 2020, an increase of £2.1 billion since 2019.


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