In a formal reply to the CIOT’s 3 July 2023 letter which raised various challenges around HMRC’s compliance approach to R&D claims, HMRC has committed to improving the quality of its handling of claims. HMRC understands, however, that half of all claims are non-compliant (75% of claims for amounts under £10,000) – statistics which ‘demand urgent action’. HMRC notes that ‘as 90% of R&D claimants are represented by an agent, we firmly believe this is a problem that requires collective action across the tax profession.’
HMRC’s volume compliance approach involves frequent challenge and the issuing of standard letters, with little opportunity for businesses or advisers to talk to HMRC or to explain the nature of their R&D claim. As the CIOT points out, historically advisers could discuss the R&D in question directly with HMRC but, under the new approach, there is often no direct engagement. The volume approach was implemented to address the high level of fraud and error HMRC has identified in R&D tax relief claims.
The CIOT urges HMRC to make sure that genuine claims are not adversely impacted by this compliance approach: ‘We remain of the view that the current volume compliance approach does not work well for R&D tax relief claims, due to the complex nature of the relief and the technical consideration required in ascertaining whether or not there has been a qualifying R&D project.’
In its wide-ranging response, HMRC sets out the following actions points which it either has already implemented or intends to bring forward:
The 2023 legislative changes, including claim notification and additional information requirements.
Doubling the size of HMRC’s specialist R&D teams (191 FTEs, compared to 93 in 2020/21), within a wider team of more than 500 compliance officials working on R&D.
‘Escalation routes for additional support should a caseworker need it’. This will cover meetings, although HMRC suggests that meetings are not required to conclude an enquiry in most cases. It is not clear how escalation will work in practice; the CIOT notes that HMRC seems to have committed to offering a meeting where HMRC considers a meeting is necessary.
New and improved guidance, including consultation on new draft guidelines to assist R&D claimants.
HMRC says that its random enquiry programme does not suggest that large numbers of customers are withdrawing their claims as a result of either the cost or complexity. We are still processing over 85% of SME scheme claims within 40 days.
HMRC also comments on raising standards in the tax advice market: ‘At their best, agents enable their clients to access the relief they are entitled to. However, as you and other stakeholders have told us previously, there are also agents who either lack capability or purposely abuse the schemes. Our compliance activity shows that some of those agents are part of national representative bodies.’
In a formal reply to the CIOT’s 3 July 2023 letter which raised various challenges around HMRC’s compliance approach to R&D claims, HMRC has committed to improving the quality of its handling of claims. HMRC understands, however, that half of all claims are non-compliant (75% of claims for amounts under £10,000) – statistics which ‘demand urgent action’. HMRC notes that ‘as 90% of R&D claimants are represented by an agent, we firmly believe this is a problem that requires collective action across the tax profession.’
HMRC’s volume compliance approach involves frequent challenge and the issuing of standard letters, with little opportunity for businesses or advisers to talk to HMRC or to explain the nature of their R&D claim. As the CIOT points out, historically advisers could discuss the R&D in question directly with HMRC but, under the new approach, there is often no direct engagement. The volume approach was implemented to address the high level of fraud and error HMRC has identified in R&D tax relief claims.
The CIOT urges HMRC to make sure that genuine claims are not adversely impacted by this compliance approach: ‘We remain of the view that the current volume compliance approach does not work well for R&D tax relief claims, due to the complex nature of the relief and the technical consideration required in ascertaining whether or not there has been a qualifying R&D project.’
In its wide-ranging response, HMRC sets out the following actions points which it either has already implemented or intends to bring forward:
The 2023 legislative changes, including claim notification and additional information requirements.
Doubling the size of HMRC’s specialist R&D teams (191 FTEs, compared to 93 in 2020/21), within a wider team of more than 500 compliance officials working on R&D.
‘Escalation routes for additional support should a caseworker need it’. This will cover meetings, although HMRC suggests that meetings are not required to conclude an enquiry in most cases. It is not clear how escalation will work in practice; the CIOT notes that HMRC seems to have committed to offering a meeting where HMRC considers a meeting is necessary.
New and improved guidance, including consultation on new draft guidelines to assist R&D claimants.
HMRC says that its random enquiry programme does not suggest that large numbers of customers are withdrawing their claims as a result of either the cost or complexity. We are still processing over 85% of SME scheme claims within 40 days.
HMRC also comments on raising standards in the tax advice market: ‘At their best, agents enable their clients to access the relief they are entitled to. However, as you and other stakeholders have told us previously, there are also agents who either lack capability or purposely abuse the schemes. Our compliance activity shows that some of those agents are part of national representative bodies.’
