The landscape of tax relief claims for research and development (R&D) in the UK is witnessing a significant challenge as Invalid Tax Relief Claims surge under the influence of recently introduced regulations. Leading industry experts have sounded a clarion call, emphasising the escalating issue of Invalid Tax Relief Claims since the new rules came into effect on August 8, 2023.
Prominent experts in the field caution that companies not complying with the new submission requirements run the risk of having their R&D tax claims declared Invalid Tax Relief Claims by HMRC (Her Majesty’s Revenue and Customs) unless prompt amendments are made.
Invalid Tax Relief Claims: HMRC’s Communication Reveals a Critical Deficiency
In a recent communication to industry professionals, HMRC revealed that nearly 50% of all claims submitted between August 8 and September 3 lacked the required Additional Information Form (AIF). This AIF is now an indispensable component of claims, whether for SME R&D tax relief or the R&D Expenditure Credit (RDEC).
An experienced expert specialising in R&D tax matters expressed deep concern about the impact of these changes: “Businesses will start to experience the tangible impact of some of the previously announced compliance modifications to R&D tax relief claims.
Tax reliefs for R&D spending since April 2023 have been reduced, and many innovative SMEs, currently preparing year-end accounts for financial periods extending beyond that date, will soon grapple with the repercussions of these reductions.
Additionally, HMRC has disclosed that nearly half of the claims submitted since August 8, when the new mandatory Additional Digital Information Forms were introduced, were completed incorrectly.”
While the exact number of businesses affected remains uncertain, industry experts speculate that thousands could be grappling with this predicament. In the tax year 2020-21 alone, the UK recorded 89,300 R&D claims, marking a 7% increase from the previous year, with SMEs being a substantial driver of this growth.
The Expert’s Take: Assisting Businesses with Invalid Tax Relief Claims
The expert who specialises in assisting SMEs across various sectors underscored that the new administrative regulations are designed to identify and rectify erroneous and fraudulent R&D claims. They added, “Businesses that have not complied with the new forms will soon receive communication from HMRC, stating that their claims are Invalid Tax Relief Claims unless they promptly amend their returns.
While some may find this manageable, those who have procrastinated could risk losing their claims entirely.”In an effort to combat malpractice, HMRC mandated that, starting from August, businesses submitting R&D tax relief claims must provide substantially more information than previously required.
HMRC’s investigations into R&D tax relief errors and fraud have intensified in recent years, driven by the proliferation of unregulated R&D tax consultancies and the additional financial burden of R&D tax credits on the Treasury following Brexit implementation.
The scale of error and fraud across all sectors of the economy related to both R&D tax relief schemes was estimated at £1.13 billion for 2020-21, equivalent to 16.7% of claims. This figure is significantly higher than HMRC’s previously published estimate of 3.6%.
The Landscape of R&D Expenditure: Insights from the Latest Data
According to the latest data from the Office for National Statistics (ONS), the UK’s expenditure on R&D conducted within its borders reached £61.8 billion in 2020, marking a £2.1 billion increase from the previous year. The largest contributors to R&D expenditure were the business sector, accounting for £44 billion, followed by the higher education sector at £13.9 billion.
