BDO comments on changes to R&D tax relief

Commenting on the changes to R&D tax relief, Dawn Register, BDO Partner and Head of Tax Dispute Resolution said:

“Despite the pressure on HMRC to tackle fraud, the rebalancing of R&D tax relief rates is another blow for Small & Medium sized businesses undertaking genuine R&D which is estimated to raise approximately £4.5bn over the next five years. The 44% reduction in repayable credit may help reduce the number of spurious or fraudulent claims, but it will affect genuine claims too. 

“Earlier estimates show the tax lost through error and fraud on R&D tax relief claims for 2021/22 is at £469m - almost 40% higher than its estimate for the 2020/21 tax year. HMRC ascribes this worrying increase to a pattern of irregular R&D claims and targeted fraud.  

“The error and fraud rate for SME relief claims is estimated to be much higher (at 7.3%) than for claims under the R&D Expenditure Credit (RDEC) scheme for large companies (1.1%) and it seems that HMRC perceive systematic failings are to blame. 

“HMRC has already instigated new checking processes for R&D claims and there are already plans announced for changes to claims’ procedures from 1 April 2023.  We expect claims will face much greater scrutiny, including from HMRC’s new R&D Anti Abuse Unit.

“Today’s budget includes investment in HMRC to tackle fraud and non-compliance in R&D tax relief claims.  This coincides with a further investment of £79m in HMRC to tackle general tax fraud and errors so those abusing the system can expect the taxman to step up its efforts.”

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