HMRC ramping up anti-abuse measures for R&D claims

 

If you have been following the Autumn Budget announcement you may have noticed that the government highly values UK Research and Development (R&D) . After all, the UK surpasses its international peers in R&D investment at 1.1% of GDP. R&D spending is also set to rise to £22 billion in the next decade, a clear indicator of the UK commitment to cultivating and promoting homegrown innovation. But at the same time adding more incentives will inevitably bring about the increased risk of abuse which HMRC has recognised.

We take a look at the measures HMRC will be enforcing, why they’re needed in the first place and what repercussions can be expected.

 

What’s going to happen?

HMRC have announced that they have hired 100 R&D compliance officers to help tackle the abuse present within the system. It is a welcome action and an indication of firmness from HMRC to ensure that R&D tax credits are available to those who actually have an eligible claim for it.

 

Why are these measures being put into place?

Unfortunately, R&D service providers are unregulated and it comes as no surprise to see many businesses being promised money for an R&D claim but never actually see it because their claim was not eligible. From our own industry experience and reviews, we found that there was an alarming number of submissions made which completely misunderstood the scope of eligibility for an R&D claim. As a result, businesses are losing crucial money paying niche providers for a service that doesn’t exist or simply has no hope in qualifying for an R&D claim. Trust and competency are key elements here, and there are many R&D businesses that do not live up to the bill.

The current state of the R&D market is in need of proper structuring, which HMRC hopes to solve through increased scrutiny.

 

What consequences are there for R&D abuse?

Potential penalties arising from abuse of the incentive will be damaging, financially and legally. HMRC enquiries can last a long time, and they have full right to open enquiries going back 20 years for R&D submissions in that period. Businesses will face high legal costs from defending themselves, and in the event the claim is found to be inauthentic (at best) businesses can expect to have to pay the full claim back, on top of up-front penalties and interest.

Just to give an idea of the scale of the financial damage these penalties could incur, the average R&D claim in the UK is around £60,000 – so a company making fraudulent claims for over 10 years would be penalised for a staggering amount.

 

WIM Accountants are here to help you

We have a thorough understanding of the processes and standards required to stay compliant with HMRC, as well as ensuring our clients are always provided with the best technical knowledge to help them make the most of their R&D claim.

With over 10 years working with R&D tax credit claims, our team of qualified and trained tax specialists are amongst the most reputable to handle your research and development tax affairs.

WIM Accountants are here to help businesses with their accounting and taxation needs.

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