Crackdown on R&D fraud

HM Revenue & Customs (HMRC) is cracking down on inaccurate and fraudulent Research and Development (R&D) claims, which cost the Government £469 million in the 2021-22 tax year.

The initiative, which started last year, has seen the taxman tightening the criteria for tax credit schemes for R&D activities, following concerns over organised criminal attacks on the schemes.

In its latest move, HMRC sent a ‘nudge’ letter in January warning companies that they may face formal tax enquiries and rejected claims if their returns are found to be inaccurate for whatever reason.

The letter states that HMRC believes companies in the sectors to which they are writing are being deliberately targeted by third parties to make inaccurate R&D claims as an amendment to their company tax returns.

It goes on to say that it is important for company directors to submit accurate claims for the correct amount of tax relief and, if any inaccuracies are found, they should make amendments as soon as possible.

According to an HMRC spokesperson, the new checks have resulted in more than 1,600 claims subjected to further scrutiny, of which more than 80 per cent were not paid out after the checks.

Eight people were arrested in October 2022 over allegations that they had submitted more than 100 fraudulent R&D tax relief claims, which would have cost the Exchequer more than £16 million.

Roger Isaacs, Forensic Partner at Milsted Langdon, said: “The assessment as to whether a claim for R&D tax credits should be agreed can often be subjective but there is a huge difference between, on the one hand, the submission of a claim in good faith that is rejected by HMRC because HMRC deems that it fails to meet the requisite criteria and, on the other hand, a deliberate attempt to defraud HMRC by knowingly submitting a claim that has no factual basis.

“Business owners who are told that, in return for a hefty fee, a third party can help them obtain tax credits that seem too good to be true would be well advised to bear in mind the old adage that if it looks too good to be true, it almost certainly will be too good to be true.”

Source: City AM

Posted in The Forensic Blog.