HMRC considers overhaul of £8bn R&D tax credit scheme amid fraud concerns

The tax credit scheme for research and development of 8 billion pounds in the UK face a major storage process as the government moves to address fraud and error on a large scale while improving access to real demands.

The proposals indicated in a published consulting besides the Spring statement indicate that companies may soon be required to obtain formal approval-or “prior guarantee”-for research and development claims (R&D) before submitting them to HMRC. Currently a voluntary option, prior guarantee is used by relatively few companies.

The Treasury said that this step can significantly reduce fraudulent and non -compatible claims, which have become a growing concern in recent years. Between 2020 and April 2023, HMRC estimates that 4.1 billion pounds of taxpayer money has been lost for fraud and error in the system of mitigating the research and development tax.

Suggested reforms are also in response to criticism from entrepreneurs and employers groups, who say the plan has become increasingly difficult to move due to increased compliance. Some legitimate companies indicate a refusal to support or request money payment, while the claims that have been reviewed poorly continues to slip.

The government said: “Sometimes incompatible claims are made in the hope that HMRC will not specify,” the government said. “The mandatory assurances in the areas of high degree of non -compliance may be the best way to achieve our goals of reducing fraud, improving customer experience and providing certainty to companies.”

The audit of research and development claims increased dramatically since 2022. The percentage of claims examined increased from 10 percent to 17 percent last year. HMRC now has more than 500 employees for compliance for research and development-an increase of five times from 2020.

The tax credit scheme, designed to stimulate innovation in science and technology, is shot after a 2022 -time investigation. Some fans advisors have been found doubtful, including the tax exemption of a vegetable list in a pub. Since then, HMRC has been pressured to enhance censorship without strangling real innovation.

Rufus Meakin, author of R&D Insider, welcomed the proposal as a “step in the right direction”, but he warned that HMRC still lacks the technical experience required to assess claims through a variety of sectors.

“This would have a long way to address the high fraud and error rates that we saw. But HMRC must be properly resources with qualified search and development inspectors to quickly address confirmation requests – otherwise the risks of the system fall to Standstill,” added Carrie Rotland, the BDO accounting and development tax partner.

While a pre -guarantee can reduce the uncertainty of companies and make a clearer path through the claim process, the success of the reform will depend on the ability of HMRC to provide both rigor and technical efficiency in implementation.

Consultation is part of a wider batch to simplify and protect one of the most important business tax incentives in the United Kingdom – which is seen as vital to paying investment in innovation at a time of low productivity and global competition.