HM Revenue & Customs (HMRC) has significantly increased the number of Research and Development (R&D) tax relief claims it has amended, sparking concerns that the tax authority is bypassing due process and unfairly rejecting legitimate claims.
Newly obtained data from a Freedom of Information request by accountancy firm Price Bailey reveals that HMRC’s Fraud Investigation Service (FIS) modified 2,440 R&D corporation tax relief claims in 2024 (as of November 12), marking a near fourfold increase from the 670 claims amended in 2023. These changes were made under Schedule 18 Paragraph 16 of the Finance Act 1998, allowing HMRC to amend tax returns where errors or omissions are suspected.
In July 2022, HMRC formed a dedicated FIS team to combat R&D tax relief fraud. However, rather than launching formal inquiries into suspect claims, the department has been “correcting” claims under its statutory powers. This approach has raised concerns that many legitimate claims are being dismissed without proper scrutiny.
Businesses that have had their claims altered are now weighing whether to accept the amendments or contest them. Many have received warning letters from FIS stating that their claims “triggered an alert” and alleging potential fraudulent claims.
The controversy has intensified following HMRC’s recent consultation, launched on Budget Day, titled The Tax Administration Framework Review – new ways to tackle non-compliance. This review suggests the government may introduce legislative changes that would make it harder for businesses to challenge HMRC’s amendments to R&D claims.
Tax experts have criticized HMRC’s approach. Gemma Thake, Tax Partner at Price Bailey, warned that the tax authority may be unfairly rejecting valid claims. “HMRC has very limited powers to amend tax returns without opening formal inquiries. The Fraud Investigation Service is meant to address suspected fraud, not simple errors or omissions. If fraud is suspected, formal inquiries should be opened,” Thake stated.
She also expressed concern over HMRC’s reliance on broad risk profiling rather than individualized case assessments. “HMRC appears to be making blanket determinations based on risk profiling rather than examining individual claims on their merits. This could lead to many genuine claims being wrongfully denied.”
Thake acknowledged the need for HMRC to address fraudulent claims but cautioned that the current approach could deter legitimate businesses from claiming R&D relief. “Many genuine claimants may be too intimidated to challenge HMRC’s amendments, meaning valid claims could go unclaimed,” she added.
As HMRC prepares to introduce an R&D disclosure facility later this year, businesses remain in uncertainty. Thake described the current situation as an “informal amnesty,” where HMRC is adjusting claims without formal investigations while promising clearer procedures in the near future.
With increasing scrutiny over HMRC’s methods, the outcome of the government’s consultation could have significant implications for businesses seeking R&D tax relief in the UK.
