HMRC’s annual R&D tax relief statistics came out last week and, as expected, provided concrete evidence of the effects of legislative changes and HMRCs increased compliance activity on the schemes.
The headline numbers show that the number of claims being submitted has reduced by 21% year on year, with the reduction in SME claims being markedly higher than the reduction in RDEC claims, at 23% and 9% respectively.
Overall, HMRC’s strategy to reduce error and fraud appears to be working although it’s difficult to say how many legitimate claims will have been rejected due to HMRC’s somewhat over-zealous approach or claimants put off claiming altogether.
Digging deeper into the stats gives an interesting picture of the effects of the changes. Looking at the sizes of claims submitted shows that the proportion of claims for a tax benefit of less that £15,000 has reduced from 41% in 2019/20 to 32% in 2022/23, whilst conversely the number of claims for a benefit of more than £50,000 has increased from 25% to 34% over the same claim period. This change in claim sizes reflects not only the reduction in fraud and error, which was seen at a higher rate in smaller claims, but also the reluctance of advisors to submit legitimate claims of this size due to reduced fees and increased enquiry risk.
Similarly, there has been a reduction in the number of claims made for companies operating in less eligible sectors, with the biggest reductions seen in accommodation and food, real estate and wholesale and retail trade and repairs. Again, there has been a corresponding uptick in the proportion of claims being made for more traditionally eligible sectors, such as information and communication, manufacturing and professional, scientific and technical. Again, this reflects both the reduction in error and fraud and the move away by advisors from sectors perceived to be at higher risk of enquiry.
In general, the stats show the scheme moving in the right direction in terms of reducing erroneous claims. In future, the AIF will give HMRC more information to go on when weeding out the remaining error and fraud and enable them to become more focussed in their approaches to compliance. Taking all of this together, and dependent on what happens in October’s budget, we’re hopeful that the number of claims will rise slightly over the next year or so as confidence returns to the sector.
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