HMRC ramps up R&D investigations

HMRC ramps up R&D investigations

Data gathered by Markel shows a huge increase in the number of R&D claims investigated by HMRC over the last twelve months. Seeking reliable advice on submissions is now more important than ever.

In recent years, the research and development (R&D) policy landscape in the UK has been shifting almost constantly. Most recently, Jeremy Hunt used his Spring Budget to announce more new changes, most notably to the level of tax relief that R&D-intensive SMEs can claim.

Meanwhile, HMRC have been allocating more resources towards investigating R&D claims, with the technical report that must be submitted with each claim coming in for particular scrutiny.

Data from Markel’s insurance claims team illustrates this increase in activity. The data predicts* that by the end of 2023, investigations into R&D claims will have risen by a staggering 900% from levels seen in 2019. Markel is also currently seeing approximately one in 25 R&D submissions being targeted by HMRC, a dramatic upturn based on previous activity.

“There’s been a big change in appetite from HMRC, who are now pursuing these claims more aggressively”, says Justine Dignam, Director of Incentives and Reliefs at Markel Tax. “If businesses are not confident that what they’re claiming for is genuine R&D activity, they should not submit. The likelihood of penalties, fines, and relief repayment is much higher than it was.”

Markel’s insurance claims data also shows an increase in the number of claims being withdrawn. Of all the claims it has dealt with over the past year, 52% have been withdrawn. Of all the claims dealt with since 2019, only 13.6% were withdrawn, again showing a big uptick.

“If HMRC’s more aggressive approach leads to the withdrawal of more claims, that approach is likely to continue”, says Dignam. There is a caveat to this, however: businesses with smaller claims who are wary of a lengthy enquiry may decide to withdraw their claims, even if they’re perfectly valid and would have been approved.

The upshot of this stance from HMRC is that substandard submissions are far less likely to succeed, and expert advice is more important than ever in achieving a successful claim. Businesses that choose to go it alone by writing their own technical submission, for example, could be left “in a very vulnerable position”.

To learn more about R&D and how Markel Tax can assist with navigating the upcoming changes, click here.