Is HMRC’s progress in tackling fraud and error in R&D claims actually a success?
BDO has taken a close look at the latest statistics on Research and Development (R&D) tax relief claims published today in HMRC’s annual report, with a particular focus on the impact of the mandatory random enquiry programme (MREP).
The findings show significant progress in reducing fraud and error, but there are still areas that need improvement.
Key Findings:
- Expenditure on R&D reliefs for 2024 to 2025 was £8.2bn, supporting innovative projects in science and technology
- HMRC processed 90% of claims within 40 days, surpassing their target of 85%
- The error and fraud rate for 2024 to 2025 was reduced to 5.9% (£481m) overall, and 10.6% (£339m) for the SME scheme
- This marks a decrease from previous years, with 2022 to 2023 was estimated as 14.7% (£652m) for the SME scheme and 3.3% (£107m) for RDEC.
Impact of the MREP Programme:
The MREP programme has played a crucial role in HMRC’s efforts to tackle fraud and error in R&D claims. By enhancing scrutiny and verification processes, the programme has helped ensure that claims are legitimate and that the system’s integrity is maintained. The programme’s focus on collaboration with industry experts has refined claim assessments, leading to more accurate evaluations and reduced error rates.
Carrie Rutland, BDO tax partner said: “While HMRC has made strides in reducing fraud and error, we believe there is room for further improvement. The introduction of the Additional Information form and increased compliance activity are positive steps, but more robust measures are needed to ensure the integrity of the R&D tax relief system.
“We recommend:
- Continued enhancement of scrutiny and verification processes to ensure claims are legitimate
- Greater consultation with industry experts when reviewing claims and implementing changes
- Increased transparency in reporting fraudulent claims to build trust in the system
- Careful debate on the introduction of the Advance Clearance Facility so that this brings about positive customer experience and greater compliance
“We are concerned that HMRC’s recent compliance approach may be too heavy-handed, potentially discouraging legitimate claims. The methodology used in HMRC’s statistical analysis could overstate error and fraud estimates, as it assumes all corrections arise from error or fraud. Many claimants abandon claims due to the resource demands of defending them, which should not be counted as fraud or error. The Additional Information Form, while mitigating error and fraud, imposes significant costs on companies, with larger groups facing extensive disclosure requirements. The original Impact Assessment outlining costs for this form was also flawed, ignoring the time needed to compile information.
“We urge HMRC to balance its compliance programme with the government’s Industrial Strategy to prevent companies from leaving the UK for more favourable jurisdictions. We know many companies are entitled to claim but choose not to due to the current environment. We advocate for ongoing improvements to safeguard the system’s integrity, ensuring genuine innovators receive the support they deserve.”