HMRC urges companies to crack down on R&D tax fraud and error

HMRC has written to more than 2,000 companies as part of its ever-increasing compliance activity to crack down on fraudulent and inaccurate R&D tax relief claims.

These letters aim to encourage its recipients to check that their previous R&D tax relief claims are complete and correct, and where inaccuracies are identified, companies are urged to make amendments to their company tax return.

HMRC has also warned companies that they may face formal tax enquiries and rejected claims if their returns are found to be incorrect, as there has been growing concern about a rise in R&D tax relief fraud in recent years.

This comes as this year’s Lords Finance Bill sub-committee’s report estimates that £469m was lost through fraud and error in its two R&D schemes last year, which is equivalent to 4.9% of corporate tax R&D reliefs. 

To address these concerns, the government has increased compliance resources and activity, and the specialist R&D team focused on SME compliance has more than doubled in size.

Carrie Rutland, innovation incentives partner at BDO, said: “Companies that have been nudged by HMRC may face higher tax penalties if their claims contain errors. Getting an expert review of past claims by a specialist is the best way to identify and rectify any mistakes in past years’ tax relief claims – both for returns that are in date to amend and for any previous years where voluntary disclosures are required.

“Past R&D claims often come up whenever a potential purchaser is doing due diligence, so management considering a sale will want to make sure there are no barriers to getting a successful transaction over the line.”