R&D crackdown still resulting in genuine claims being rejected

Despite ongoing concerns surrounding the handling of R&D tax relief compliance, figures show that there are still many legitimate claims being rejected.

Back in July, the Chartered Institute of Taxation (CIOT) warned HMRC that the way in which they were conducting Research and Development (R&D) enquiries had led to ‘a breakdown of goodwill and trust between HMRC and taxpayers and their agents’.

Just a couple of months later, HMRC accepted that their handling of some R&D tax relief claims had not met their own standards and commitments.

Despite this, the CIOT has now reiterated concerns that valid claims are still being rejected.

The Institute agrees with HMRC that action is needed to tackle error and fraud in R&D credit claims but does not believe the ‘volume compliance’ approach that has been followed by HMRC since late 2022 is the right tactic.

Commenting on this, Ellen Milner, CIOT’s Director of Public Policy, said, “R&D tax credits are intended to support the UK’s ‘push for growth’, but frustrating enquiries resulting in the rejection of legitimate claims are undermining this. Businesses are being put off claiming relief to which they are entitled.

“Abuse of R&D relief is a genuine problem, and HMRC should take appropriate action to tackle it. However, as well as correctly catching invalid claims, a large number of valid claims are being rejected or withdrawn due to the ‘volume compliance’ approach being taken. HMRC are undermining confidence in R&D tax relief, having eroded the trust that they will accept or properly consider legitimate claims.

“In our view, the balance between tackling the problems of error and fraud and the impact on compliant claimants is currently tilted too far towards the former. Genuine claimants and compliant taxpayers should not suffer because of the bad behaviour of others.

“We are aware that HMRC are taking steps to improve their training and assurance processes. Also, at the Autumn Statement, the Chancellor announced that HMRC will be publishing a compliance action plan in due course. We hope that this will be as effective as possible in tackling error and fraud, while redressing the balance towards a fair enquiry process for all claimants.

“We support HMRC in their efforts to tackle error and fraud and are committed to our role in upholding professional standards in the tax service industry. In this vein, we look forward to continuing our engagement with HMRC on this issue, and working with them to try to improve things.”

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