R&D tax credits processing delayed for error and fraud checks

HM Revenue & Customs (HMRC) has said there will be delays in the payment of some research and development (R&D) tax credit claims this year. The delay is to allow more time to check suspect or irregular claims.

This means that for the majority of claimants, it now aims to pay within 40 days – up from the standard 28-day processing timeframe.

The tax authority has allocated 100 new compliance officers and is working to understand the nature and scale of the error and fraud associated with these reliefs.

The estimated total amount of R&D tax relief support claimed for the year ending March 2020 is £7.4 billion, an increase of 19 per cent from the previous year. This corresponds to £47.5 billion of R&D expenditure, 15 per cent higher than the previous year.

What has caused the delay?

In 2019/20, the National Audit Office extended the qualification in HMRC’s accounts to include R&D tax relief, due to the estimated level of fraud and error.

The accounts estimated error and fraud across both the small and medium enterprises (SMEs) and research and development expenditure credit (RDEC) schemes as 3.6 per cent of the cost of total tax relief of R&D tax credits, or £311 million.

They have stressed the importance of ensuring claims are fully complete, compliant, and contain supporting information and documentation.

What is the definition of R&D tax reliefs?

R&D tax reliefs are a form of non-repayable Government funding via tax credits and Corporation Tax reliefs for research and development of innovative products, services and processes.

The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology.

R&D grants cover a number of areas including:

• Start-ups with high potential
• Developing new or improved products, processes or services
• IT development
• Prototype development
• Feasibility studies
• Collaborative research

To get R&D tax relief you must be able to explain how a project:

• Looked for an advance in science and technology
• Had to overcome uncertainty
• Tried to overcome this uncertainty
• Could not be easily worked out by a professional in the field.

For help and advice on R&D tax credits, please contact a member of our expert team today.