HMRC has halted the payment of research and development (R&D) tax credits while it investigates irregularities in claims for the relief
HMRC contacted accountancy firms on Monday informing them of the decision to pause the payment of research and development tax credits as it investigates what it refers to as ‘irregular claims’ for the tax credit payments.
In a message to firms, HMRC stated that the move may cause delays to its processing times for other R&D tax credit claims, the tax authority said this will ‘ensure they prevent abuse of the relief’.
The tax authority stated that the majority of R&D tax credit claims are ‘genuine and will not be affected’.
HMRC has also requested that claimants do not contact the R&D helpline/mailbox to chase their claims. Instead, it has asked agents and companies to review their online account for updates on the status of claims.
HMRC confirmed that it will continue to issue the regular Monday agent email to update claimants on the processing times but ‘hopes to share more information’ with agents next week.
In order to process payments more quickly, HMRC has asked people to ‘ensure’ that they have completed all entries on the R&D section of the corporation tax return (CT600 form) adding that ‘submitting additional information to support any claim, such as an R&D report, will also help HMRC to process claims quicker’.
The tax authority also issued the reminder that if a claim that is incorrect, inflated, or fraudulent is submitted then a penalty could be issued.
A HMRC spokesperson said: ‘We have paused some research & development tax credit (RDTC) payments while we investigate some irregular claims.
‘The majority of R&D relief claims are unaffected but there will be some delays to our usual processing times. This is to ensure we prevent abuse of the relief.’
In December, accountancy firm Azets issued a warning to SMEs about rogue R&D advisers who were targeting small businesses and making inappropriate claims.
The firm’s analysis of HMRC’s most recent annual report found that the monetary value of fraudulent R&D claims in 2021 was £303m, which was up from £271m in the previous year.
The firm stated that it expected HMRC to tighten its controls on the relief after the Chancellor announced reforms of the R&D tax credits announced in the Autumn Budget 2021 which are to come into effect in April 2023.
The announced reforms aimed to support modern research methods by expanding qualifying expenditure to include data and cloud costs, refocus support towards innovation in the UK and a raft of measures to target abuse and improve compliance.
Research and Development (R&D) reliefs support companies that work on innovative projects in science and technology. It can be claimed by a range of companies that seek to research or develop an advance in their field. It can even be claimed on unsuccessful projects.
You may be able to claim Corporation Tax relief if your project meets our definition of R&D.
Tax Credits Explained
In order to encourage Research and Development the UK Government introduced R&D Tax Credits in 2000.
This has proved highly popular with 86,000 UK companies claiming back almost £7.4bn in tax relief in 2020. R&D Tax Credits are a very niche part of the UK tax code that could bring your company thousands of pounds in tax relief.
- A government incentive aimed at advancing science and technology within UK companies
- Launched in the year 2000
- Rewards innovation, risk taking, and research and development
- You can backdate your claim up to two financial years.
Who is eligible?
Companies of all sizes can claim R&D Tax Credits.
The size of your business will determine which R&D Tax Credits scheme you are eligible for and ultimately what proportion of your spend you can claim back, but every business registered in the UK is eligible.
Eligible R&D activities:
- Overcoming technical challenges
- Creating and testing prototypes
- Streamlining processes
- Trialling new or substituting materials
- Developing bespoke software
- Trial and error
- Industry firsts
What can be claimed back?
R&D Tax Credits are calculated based on enhancing expenditure for research and development work, as the UK Government aims to reward innovation for SMEs and large companies.
- Staff wages and other related costs
- Payments made to sub-contractors and external workers
- The cost of materials consumed
- Software licensing costs
- Payments to clinical volunteers
- Light, heat, power and other utility costs.