What HMRC’s Accounts Tell us About R&D Claims

This might not sound like a very interesting topic, but it has relevance for so many small businesses.

HMRC prepares accounts on an annual basis, and these are scrutinised by the National Audit Office. This government agency has qualified the accounts of HMRC for the last 17 years, so that is nothing unusual, but there are new reasons given this year as to why the accounts have been qualified.

The underlying cause of the qualification is primarily due to uncertainty concerning fraud. The main area is fraud this time was that perpetuated in connection with the Covid 19 support packages. HMRC are busy reclaiming what they can, and that process will go on for years.

However, the second area of uncertainty is in connection with fraudulent R&D Tax Credit claims. Now, I do not think for a minute that any of our clients would knowingly sanction a fraudulent tax credit claim, but, when I read this, it did set me thinking, which is never a good idea.

We do R&D Tax Credit claims for our clients and we charge a fraction of the price that third party providers charge. I have spoken to representatives of numerous third party providers of R&D Tax Credit Claim services and they all make the same boast. That is that none of their claims has ever been refused by HMRC. Leave that on one side for a moment. HMRC have never challenged one of our claims at the point of submission. They accept what we tell them and in many cases our client gets a payment from HMRC. But we know that HMRC may, at a later date, review the claim and could ask for some or all of it back, if they are satisfied that our claim is invalid.

So, presumably it is going to be the same with third party providers. HMRC will accept the claim that they have submitted, for which the provider has been paid by a grateful client, but at some time in the future, HMRC may come calling. HMRC will not go to the third party but to you as the taxpayer.

In reality. I have never seen any claim challenged at the point of submission or later, but the comment in the HMRC’s accounts about R&D Tax Credit claims makes me wonder if we are going to see a change in attitude to these claims. HMRC are recruiting more staff specifically to tackle fraud. Will some of them be allocated to checking the validity of R&D Tax Credit claims that have been made over the last few years. The answer to that is that I do not know for sure, but given HMRC needs to collect money, could this be a quick source of funds for them?

At the end of the day, the Covid leakage was an accepted risk of rolling out last year’s Covid support schemes so quickly, which limited HMRC’s ability to mitigate error and fraud. As a result, HMRC themselves estimated a fraud and error rate of 8.7% for the furlough scheme (equivalent to £5.3bn), 2.5% for SEISS (£492m) and 8.5% for Eat Out To Help Out (£71.4m). HMRC’s estimates are subject to considerable uncertainty and according to the National Audit Office, the actual levels of error and fraud in the schemes could differ significantly from the estimated rates and values currently reported.

The same uncertainties surrounded HMRC’s £336m estimate for error and fraud in R&D tax credits, which was up £25m in 2019-20.

HMRC now needs to identify, measure, and recover payments made as a result of erroneous or fraudulent claims, at the same time as returning its compliance activity as a whole to more normal levels. Don’t be surprised if you get a knock at your door. If you do, you know where to find us.

If you want to carry on this discussion but you are not sure where to find us, please click here.

Alan E Long

The Long Partnership

07770 738770



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