Molly Rushworth reports on HMRC's response to Tax Credit Fraud and Error.
R&D tax credit fraud was identified as a major concern in HMRC’s latest annual report and accounts as the published figures for fraud and error in 2020-21 rose from its previous estimate of £336 million (3.6% of the total value claimed) to £1.13 billion (16.7%). HMRC’s Chief Executive admitted that they underestimated the level of fraud and error within the R&D tax credit regime and have since implemented changes to address the issue.
In November 2022, it was acknowledged to the House of Lords that claims in 2022-23 so far were ‘determined to be inaccurate in 84% of closed 1-2-1 enquiry cases in the SME R&D scheme. Of those R&D claims challenged and closed in 2022-23, the average additional amount due as a result of the inaccurate claim is £128,000.’
HMRC previously selected enquiry cases on a risk basis and made assumptions on the level of non-compliance in the remaining population of R&D claims. However, since undertaking random checks across the entire population of claims, HMRC discovered that the level of fraud and error was much higher than expected and nearly 50% of all R&D claims contained errors. As a result, HMRC have increasingly introduced more vigilant compliance checks, which are continuing to date.
HMRC responded in several ways including:
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