Issue 153

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New requirements leading to invalid R&D tax relief claims
New UK regulations have introduced additional documentation requirements for research and development (R&D) tax relief claims, leading to nearly half of claims
submitted since August 8 being declared invalid by HMRC. This marks the first impact of compliance changes to R&D tax relief claims, with reduced reliefs for R&D
spending from April 2023 affecting innovative SMEs reporting financial periods beyond that date.
HMRC revealed that almost 50% of claims submitted with the new mandatory digital information forms have been completed incorrectly. Non-compliant
companies will receive letters from HMRC stating their claim is invalid unless they amend their returns, posing challenges for those who have procrastinated.
It’s uncertain how many claims were rejected between August 8 and September 30, but given 89,300 R&D claims were made in the UK for the tax year
2020-21, the number could be substantial. These new requirements aim to curb erroneous and fraudulent R&D claims. They mandate that each claim is
endorsed by a named senior officer, any advising agent is named, and costs must be categorized with detailed R&D descriptions.
HMRC has ramped up investigations into R&D tax relief errors and fraud, driven by the rise of unregulated R&D tax consultancies and the
financial burden of R&D tax credits after Brexit. In 2020-21, error and fraud for both R&D tax relief schemes amounted to £1.13 billion, or 16.7%
of claims, significantly higher than HMRC’s prior estimate of 3.6%.
For the tax year 2021-22, UK companies spent £44.1 billion on R&D, up £3.3 billion from the previous year.
Additional changes to the R&D tax credit scheme are proposed, stemming from HMRC’s malpractice campaign and recent
consultations:
1. Unifying separate schemes: The government aims to introduce a single relief system, largely aligning with the RDEC (large
company) scheme, with some exceptions.
2. Subcontractor expenditure: Large companies may be allowed to claim for payments to subcontractors, expanding the
scope of qualifying expenditure.
3. PAYE cap: The more generous SME cap for companies is proposed instead of the more restrictive RDEC scheme
definition, potentially providing higher relief to some companies.
For questions or more information about R&D relief claims, contact your Azets advisor.
David Seymour
Senior Manager
Cardiff | 02920 549939
david.seymour@azets.co.uk
Bryony Lewis
Assistant Manager
Cardiff | 02920 549939
bryony.lewis@azets.co.uk