As R&D tax consultants, we endeavour to combat R&D tax relief non-compliance by ensuring that all claims we submit are fully compliant.
There has been recent consternation that the latest HM Revenue and Customs (HMRC) statistics have shown a drop in smaller R&D tax relief claims being made, with many seeing it as a troubling omen.
However, by delving deeper into the non-compliance statistics, it might be possible to see the death of small claims as a positive and even something that could be beneficial to the future of R&D tax relief claims.
Is non-compliance a big problem with R&D tax relief claims?
There has been a long history of R&D tax relief claims being associated with error and fraud, hence the recent upheavals to the ways in which claims were submitted and assessed.
We recently highlighted that R&D tax relief claims are still beset by compliance issues, with around half of claims submitted using the old SME scheme being at least partly non-compliant.
However, the RDEC scheme has always boasted higher rates of compliance and when those figures are included, it portrays a slightly more positive picture.
This is important given the recent launch of the Merged Scheme, wherein the RDEC and SME claims will be treated the same and thus understanding the way in which they interact could indicate how the future of R&D tax relief claims will be.
In terms of value, while nearly half of SME claims did have errors, that only translated to a quarter of the value of the claims being erroneous or fraudulent.
When paired with the 4.6 per cent of RDEC values being discounted for the same reason, it brings the overall non-compliance value to 17.6 per cent.
HMRC is increasingly optimistic about the trajectory of compliance in R&D tax relief claims, having estimated that the error and fraud rate will likely have dropped to an overall 9.9 per cent for 2022-2023 and 6.5 per cent for 2023-2024.
This is being projected to drop to 5.9 per cent for 2024-2025, signalling confidence in the current compliance measures.
Have recent changes to R&D relief tax made it less appealing?
The fact that there has been a 26 per cent drop in R&D tax relief claims in the last year has been touted as a sign that the scheme might be losing its appeal.
As we have pointed out, the fact that the value of the claims only dropped by two per cent suggests that many innovative businesses are still engaging with R&D tax relief claims.
When the statistics are viewed as a whole, they do show an overall change in the way that R&D tax relief is being treated.
Fewer SMEs are claiming and small claims are declining sharply, as there were 31 per cent fewer SME claims in the 2023-2024 year.
However, given that SME claims have always had a much higher rate of non-compliance, it would be illogical to mourn the decline or view it as a sign that R&D tax reliefs need a major reworking.
As lower value SME claims sometimes had a compliance rate as low as 35 per cent, it is worth considering the value that such claims were bringing to the R&D tax relief scheme.
Shedding the erroneous claims while preserving the overall value of the scheme is the clearest sign that R&D tax relief reforms have worked and we are interested to see what the actual compliance figures are when they get released.
We work with accountancy firms and innovative businesses to improve the compliance of R&D tax relief claims while ensuring they are maximised for the best value.
We monitor HMRC statistics closely to better understand the current state of R&D tax relief claims and discern how things might change in the future.
This allows us to bring the high-quality support you have come to expect from an R&D tax consultant.
Speak to our team today for support with your R&D tax relief claims.
