HMRC Looking to Reclaim R&D Tax Relief Payments

HMRC are starting to clamp down on business research and development payments, with some being asked to pay back money they’ve previously been awarded. This follows announcements from the autumn budget of changes to how R&D tax relief will be calculated and distributed.

It’s thought that HMRC have been routinely underestimating the level of fraudulent claims over several years. Wary of making any further mistakes, the tax authority is not only making their current application process more stringent, but also reassessing past claims. This has seen several businesses hit with notices that they’ll have to repay HMRC tens of thousands of pounds.

Concern among SMEs

Forbes Burton’s Senior Client Manager, Ben Westoby, has already noticed the changes causing disruption to several businesses. “Some SMEs rely on the R&D funding given by HMRC, and are now experiencing far longer waits for a decision on their applications” he said, adding that “the hold ups are making many directors nervous. Not only because the delays could cause issues, but also because their claims may not be deemed worthy of a payment at all”.

Tina McKenzie, policy chair of the Federation of Small Businesses, has noticed a similar rise in worried company owners. The organisation has experienced a raft of businesses getting in touch about this development. On this, she stated that “HMRC is mishandling its approach to past and present R&D claims in a way that undermines the innovative small firms who are needed if we are to grow our economy”.

She explained that HMRC “needs to recognise the importance of a predictable and supportive tax environment for those businesses at the cutting edge of technological change, which are increasingly small firms”.

HMRC Keen Not to Repeat Errors

The reassessment of old claims was recommended by the National Audit Office’s spending watchdog, after HMRC estimated that over £1bn was erroneously given to small businesses during the 2020-21 financial year.

Jeremy Hunt’s autumn budget laid out plans to streamline the process for R&D claims by merging the rules of the existing RDEC and SME schemes. The resultant cuts to the policy drew criticism from some quarters, however, with some suggesting the move helped large corporations but made it more difficult for SMEs to receive support.

Further reforms are due to take place from 1^st April 2024, with HMRC keen to reduce the number of fraudulent claims paid out. Their own report estimated that 16.7% of all R&D tax credit claims were either fraudulent or issued in error.

One of the main drivers for a successful claim is the demonstration of innovation. This, however, is a grey area that some find a bone of contention. It can be difficult to measure innovation, or even know exactly what HMRC are looking for, so many will be hoping for more clarification in the future. In the interim, concerns remain that extra red tape could hinder true innovation among the UK’s small businesses.

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