R&D tax relief claims have long been viewed with a stigma that several high-profile scandals have cultivated over the years – a stigma that prevents innovative businesses from accessing vital funds.
As R&D tax consultants, we work to educate accountants and innovative businesses on best practices surrounding R&D tax relief claims.
As HM Revenue and Customs (HMRC) work to make R&D tax relief claims more compliant, we wanted to take a look at the statistics to see how big a problem noncompliance is.
How big a problem is non-compliance with R&D tax relief?
There is no denying that non-compliance with R&D tax relief was once a notable problem.
In the figures for 2020 to 2021, rates of compliance varied wildly.
While 74 per cent of R&D tax relief claims with expenditure over £1 million were fully compliant, some of the smaller claims only had a 35 per cent compliance rate.
Oddly enough, this figure was attached to claims between £50,000 and £75,000, in which over half of the value of the claims were non-compliant.
In total, it was certainly true that only 50 per cent of claims included in the statistics were fully compliant.
While this figure is a cause for concern, enough of a concern that HMRC took to reforming the R&D tax relief scheme in response, it is worth noting that only 24 per cent of the value of claims was non-compliant.
The misattributed value is worse in lower claims, as 78 per cent of the value of R&D tax relief claims below £10,000 was non-compliant.
Do more recent figures show a change in R&D tax relief compliance?
Given how long it takes for data on R&D tax relief to be compiled, it can be frustrating to look at figures from so far in the past and be unsure if they speak to current patterns.
Fortunately, we do have the figures from 2021 to 2022 to shine more of a light and we can expect the 2022 to 2023 figures within the next month or two.
On the whole, the compliance rates are largely unchanged.
Overall compliance fell slightly from 50 per cent to 49 per cent, meaning over half of R&D tax relief claims did include at least some errors.
The real eye-catching figure is the jump in fully non-compliant claims, going from 14 per cent in the 2020 to 2021 figures to 30 per cent in the 2021 to 2022 figures.
This means that the partially non-compliant claims have dropped from 36 per cent to 21 per cent.
Mid-value claims continue to pose problems for compliance, as only 29 per cent of claims with an expenditure between £30,000 and £40,000 were fully compliant.
What do the non-compliance rates mean for R&D tax relief?
As mentioned, it can be challenging to draw meaningful conclusions given the age of the data.
On the whole, we would expect these figures to improve given the more recent changes to R&D tax relief claims.
For context, these figures predate the Merged R&D Scheme, the Additional Information Form (AIF) and the Advanced Notification Form (ANF).
What impact these changes have had on the quality of R&D tax relief claims remains to be seen, but we will report on it as soon as the figures are released.
We would also expect HMRC to be taking a sterner approach to R&D tax relief claims in light of figures like these and this could influence further reforms down the line.
In the meantime, we endeavour to submit fully compliant R&D tax relief claims for any size of business.
