Rogue R&D claim repayments could cost SMEs millions

Rogue R&D claim repayments could cost SMEs millions

Businesses using R&D tax relief schemes as a way to boost cash during the COVID-19 recovery should be wary; repayments of rogue R&D claims are likely to cost SMEs millions of pounds.

In its latest annual report for 2020-21, HMRC reported an implied monetary value of £303 million due to R&D error and fraud within the SME Scheme – up from £271 million in the previous year.

This is in part down to a small group of ‘rogue’ boutique advisors who inappropriately seek to maximise R&D tax credit claims and actively targeting SMEs hit hardest by the pandemic.

Businesses should continue to keep investing in R&D but take the appropriate steps to ensure they do not inadvertently or otherwise claim fraudulently, with HMRC widely expected to tighten controls to better combat rogue advisors and fraudulent claims.

The Government has set itself an ambitious target to raise total investment in R&D to 2.4% of UK GDP by 2027 – but it must do more to protect SMEs from a minority of rogue firms who seek to maximise claims inappropriately in order to increase their fee which is calculated as a percentage of that claim.

This is driven by non-prescriptive R&D rules which are open to interpretation and inappropriate claims by rogue firms targeting cash-strapped businesses. Ultimately, it’s the businesses that will suffer when the Government inevitably acts to reduce the growing cost of R&D error and fraud, particularly with new incentives for R&D investment increasing their vulnerability to rogue advisors.

In September, HMRC reported a significant increase in the total number of R&D claims, revealing a 16% increase in the year ending March 2020. This equates to £7.4bn in total support claimed, up 19% from the previous year (£6.3bn), with further increases from 2023 following the expansion of the R&D tax relief scheme to include cloud computing and data costs, announced during the Autumn Budget 2021.

Businesses should consider the following steps to ensure they take appropriate advice and take advantage of R&D tax relief schemes in a way that is both safe and legal.

• Be proactive in researching and understanding Government guidance on new and existing allowable R&D expenses against your company’s activities or planned activities.
• Review these activities to assess whether you are eligible for R&D tax relief claims – or whether you can invest in R&D in order to stimulate growth.
• Beware of unsolicited approaches from boutique firms specialising in R&D tax claims and ensure you complete rigorous due diligence before taking advice.
• Seek advice from your own accountant and reputable firms with memberships to professional bodies, with reliable references from peers.

Get the right advice and start your claim

The widening of allowable expenditure in IT will considerably help the SME sector in which businesses use cloud-based solutions to enable their IT infrastructure and echoes the modern way of working. However, make no mistake the emphasis is on businesses to make sure they are taking the right advice and making legitimate R&D tax relief claims.

At Azets, we have a wealth of experience in making R&D claims in a wide range of industries and sectors. Our specialists have an excellent track record in making successful, HMRC-compliant claims and have delivered significant tax savings for our clients. Using our deep knowledge of the government support available, the qualifying criteria, and the application process, we’ll help you to unlock those all-important incentives and cash injections. 

Get in touch with the Azets specialist R&D team today to find out more and get started with your claim.