HMRC aims to recover £612 million in underpaid tax relating to R&D tax reliefs

According to accountancy and business advisory firm BDO LLP, Her Majesty’s Revenue and Customs (HMRC) has estimated that businesses have incorrectly claimed £612 million in relation to R&D tax reliefs*. The high level of tax under dispute – described by HMRC as ‘tax under consideration’ – suggests that businesses need to show enhanced caution when claiming R&D tax reliefs to avoid potentially expensive and unnecessary tax disputes.

HMRC is expected to launch more investigations into businesses that have incorrectly claimed R&D tax relief claims over the coming year. R&D tax credits are worth more than £4.3 billion to UK businesses. BDO says it’s one of the most generous tax breaks from which UK businesses can benefit.

Evad Hamouieh, partner at BDO, commented: “HMRC’s tough stance on the misuse and over-claiming of R&D tax credits will no doubt become an area of increased focus. However, with the right advice, businesses should not be put off from claiming this valuable tax incentive. The ability of UK firms to invest in R&D will be paramount to their success post-Brexit. While some businesses are finding themselves in a fix by overclaiming, many more businesses are failing to claim the money to which they’re entitled.”

HMRC is also targeting businesses for £90 million in underpaid tax relating to Patent Box in 2018-2019, which is up 15% from the £78 million in 2017-2018. Patent Box allows companies to pay tax at an effective rate of 10% on patent-related profits, as opposed to the standard rate of corporation tax of 19%.

BDO says identifying the profits that result directly from a patent can be confusing, leading to businesses over-claiming the patent box relief. An incorrect application could lead to a lengthy delay in HMRC granting the relief.

One problem has been the growth in unregulated tax boutiques offering advice to businesses on how to maximise their tax rebates. This may be leading to companies misusing the system.

Hamouieh stated: “Opaque regulations and unscrupulous advice may be reducing the appeal and damaging the reputation of otherwise highly-credible tax reliefs.”

There are two separate R&D tax relief schemes available to businesses in the UK. Depending on the size of the company, these schemes are the SME R&D Relief Scheme and the Research and Development Expenditure Credit Scheme for larger firms.

*UK’s Top 2,000 businesses by turnover

About the Author
Brian Sims BA (Hons) Hon FSyI, Editor, Risk UK (Pro-Activ Publications) Beginning his career in professional journalism at The Builder Group in March 1992, Brian was appointed Editor of Security Management Today in November 2000 having spent eight years in engineering journalism across two titles: Building Services Journal and Light & Lighting. In 2005, Brian received the BSIA Chairman’s Award for Promoting The Security Industry and, a year later, the Skills for Security Special Award for an Outstanding Contribution to the Security Business Sector. In 2008, Brian was The Security Institute’s nomination for the Association of Security Consultants’ highly prestigious Imbert Prize and, in 2013, was a nominated finalist for the Institute's George van Schalkwyk Award. An Honorary Fellow of The Security Institute, Brian serves as a Judge for the BSIA’s Security Personnel of the Year Awards and the Securitas Good Customer Award. Between 2008 and 2014, Brian pioneered the use of digital media across the security sector, including webinars and Audio Shows. Brian’s actively involved in 50-plus security groups on LinkedIn and hosts the popular Risk UK Twitter site. Brian is a frequent speaker on the conference circuit. He has organised and chaired conference programmes for both IFSEC International and ASIS International and has been published in the national media. Brian was appointed Editor of Risk UK at Pro-Activ Publications in July 2014 and as Editor of The Paper (Pro-Activ Publications' dedicated business newspaper for security professionals) in September 2015. Brian was appointed Editor of Risk Xtra at Pro-Activ Publications in May 2018.

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