Azets has issued a warning to businesses using research and development (R&D) tax relief schemes as a way to boost cash during Covid recovery as repayments of rogue claims are “likely to cost millions of pounds”.
HMRC’s latest annual report for 2020-21 reported an implied monetary value of £303m due to R&D error and fraud within the SME Scheme, up from £271m in the previous year.
Tim Croft, national head of R&D at Azets, said this is partially due to a small group of “rogue” boutique advisors who “inappropriately” seek to maximise R&D tax credit claims and are actively targeting SMEs hit hardest by the pandemic.
Croft is urging businesses to keep investing in R&D but to take appropriate steps to prevent inadvertently or claiming fraudulently, with HMRC reportedly expected to tighten controls to combat rogue advisors and fraudulent claims.
Following the government’s target to raise total investment in R&D to 2.4% of UK GDP by 2027, Croft warns that the government must do more to protect SMEs from “rogue firms who seek to maximise claims inappropriately in order to to increase their fee”.
According to Croft, businesses must ensure to take appropriate advice and take advantage of R&D tax relief schemes in a way that is safe and legal.
This includes researching and understanding government guidance allowable R&D expenses, assessing whether a business is eligible for R&D tax relief claims, being aware of unsolicited approaches from boutique firms specialising in R&D tax claims, and seeking advice from an accountant and reputable firms.
In September, HMRC reported a significant increase in the total number of R&D claims, revealing a 16% increase in the year ending March 2020, with £7.4bn in total support claimed, up 19% from £6.3bn the previous year, according to Azets.
Croft said: “We welcome the widening of allowable expenditure in IT, which will considerably help the SME sector in which businesses use cloud-based solutions to enable their IT infrastructure and echoes the modern way of working.
“But make no mistake, the emphasis is on businesses to make sure they are taking the right advice and making legitimate R&D tax relief claims.”