The UK government is set to introduce major reforms to its £8 billion-a-year Research and Development (R&D) tax credit scheme in an effort to curb widespread fraud and improve accessibility for legitimate businesses.
Proposals unveiled in a consultation published alongside the Spring Statement suggest that companies may soon be required to obtain formal pre-approval—known as “advance assurance”—before submitting R&D claims to HMRC. Currently, advance assurance is voluntary and used by relatively few businesses.
The Treasury believes mandatory pre-approval could significantly reduce fraudulent and non-compliant claims, which have been a growing concern in recent years. Between 2020 and April 2023, HMRC estimates that £4.1 billion in taxpayer money was lost due to fraud and errors within the R&D tax relief system.
Government Aims to Balance Oversight and Accessibility
The proposed reforms come in response to criticism from entrepreneurs and business groups, who argue that heightened compliance checks have made the scheme increasingly difficult to navigate. Some legitimate companies have faced rejected claims or been asked to repay funds, while questionable claims have continued to be approved.
“Non-compliant claims are sometimes made in the hope that HMRC will not identify them,” the government stated. “Mandatory assurances in areas with a high degree of non-compliance may be the best way to meet our objectives of reducing fraud, improving customer experience and offering certainty to businesses.”
Scrutiny of R&D claims has risen significantly since 2022, with HMRC increasing the proportion of claims being checked from 10% to 17% over the past year. The agency has also expanded its compliance team, now employing over 500 staff dedicated to reviewing R&D claims—a five-fold increase from 2020.
Crackdown on Fraud Amid Concerns Over Stifling Innovation
The scheme, originally designed to incentivise innovation in science and technology, has faced backlash after a 2022 investigation by The Times exposed widespread abuse. Some advisors were found to be promoting dubious claims, such as applying for tax relief on a vegan menu at a pub. This has placed pressure on HMRC to tighten oversight without deterring genuine innovation.
Experts in the field have expressed mixed reactions to the proposed changes.
Rufus Meakin, author of the R&D Tax Credit Insider blog, called the move “a step in the right direction” but warned that HMRC still lacks the technical expertise to assess claims across a broad range of industries.
Carrie Rutland, an R&D tax partner at accountancy firm BDO, supported the proposal but cautioned that “HMRC must be properly resourced with qualified R&D inspectors to process assurance requests quickly—otherwise, the system risks grinding to a standstill.”
Future of R&D Tax Credits in the UK
While mandatory pre-approval could reduce uncertainty for businesses and streamline the claims process, the success of the reform will depend on HMRC’s ability to implement the changes efficiently without delaying much-needed tax relief.
The consultation is part of a broader initiative to simplify and protect one of the UK’s most significant business tax incentives, which is considered crucial for driving investment in innovation during a time of economic uncertainty and global competition.
