As part of the recent publication of HMRC’s Annual Report and Accounts for 2022-23 (see earlier feature on this), HMRC also published new estimates for the level of non-compliance in research and development (“R&D”) tax reliefs. The Government also published HMRC’s Approach to R&D Tax Reliefs which sets out HMRC’s compliance approach in this area in more detail. The next R&D workshop with HMRC is at the beginning of September and will include a prolonged session on this. Hence HMRC is keen to have your questions and thoughts as soon as possible in advance of that workshop so that some more detailed, thematic answers can be provided at the session. Chartered Accountants Ireland is represented on HMRC’s R&D forum and would welcome your feedback on this new publication as we are concerned that this is deterring genuine R&D tax relief claimants. Read the full email from HMRC below.
“We have recently completed new analysis to better understand the size and scope of non-compliance in the R&D reliefs, based on the most detailed work that has ever been carried out on them (a post-payment, random sampling exercise conducted by our R&D specialists). The updated estimate of the overall level of error and fraud for both reliefs for 2020-21 is 16.7% (£1.13bn), which is significantly higher than the previously published estimate of 3.6% for 2020-21. The majority of this non-compliance is in the SME scheme, where error and fraud for 2020-21 is estimated as 24.4%.
This methodology for estimating the level of non-compliance in these reliefs represents international best practice, but introduces a two-year time lag on the estimates due to relying on post-payment enquiries. As a consequence, many of the changes that the government has introduced in the last three years to reform the schemes are not reflected in the latest estimate.
Over the last three years, HMRC has more than doubled the number of people working on R&D compliance. This includes an extra 300 people tackling non-compliance. In addition to this increased resource, the government has announced new policy measures to counter non-compliance. Some are already in place with others coming into effect from August.
The Government is absolutely clear that this level of non-compliance within the R&D tax reliefs is unacceptable, and today HMRC has published HMRC’s Approach to R&D Tax Reliefs. This document sets out what the latest HMRC analysis tells us about the scale and shape of non-compliance in R&D tax relief schemes, details the action taken by the government to date, and sets out the department’s compliance approach to R&D.
As a key stakeholder in R&D tax reliefs, we want to work with you to deliver the significant improvements in the regime that are needed. We know this will take a collective effort.”
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