DPP Business Tax

Research & Development Tax Fraud

DBT & Partners are an expert team of solicitors who specialise in all areas of fraud. We have had huge success in research and development (R&D) tax fraud cases for individuals and businesses over the years, and have built winning defence cases in courts across the UK.

With HMRC undertaking an aggressive clampdown on R&D tax fraud, in light of reported £1 billion annual losses due to error and fraudulent activity, R&D tax relief claimants are under greater scrutiny than ever.

As an increasing number of compliance checks (enquiries) are now being actively pursued by HMRC, it pays to understand what counts as a legitimate claim and what constitutes R&D tax fraud in the eyes of the law.

If your business is the subject of a pending R&D tax enquiry or you have been accused of R&D tax fraud as a result of an enquiry, don’t hesitate to contact DBT & Partners for advice.

Our experienced R&D tax fraud solicitors can help you avoid the expense of an enquiry, where possible, or mount a robust R&D tax fraud defence that demonstrates the legitimacy of your claim.

What is R&D tax relief?

According to the government’s definition:

“Research and Development (R&D) tax relief supports companies that work on innovative projects in science and technology. You may be able to claim Corporation Tax relief if your project meets the standard definition of R&D.”

Tax relief claims must demonstrate an advance in the field of science and technology. Claims about the arts, humanities or social sciences (including economics) are not eligible for relief.

For an R&D tax relief claim to succeed, it must explain how a project:

  • Looked for an advance in the field
  • Had to overcome the scientific or technological uncertainty
  • Tried to overcome scientific or technological uncertainty
  • Could not be easily worked out by a professional in the field

There are two types of R&D tax relief available, depending on the size of your business and whether a project was subcontracted to you:

Small and medium-sized enterprise (SME) R&D tax relief – This relief can be claimed by SMEs with fewer than 500 staff and a turnover of less than 100 million euros (or a balance sheet total under 86 million euros).

R&D expenditure credit (RDEC) – This relief can be claimed by large companies or subcontracted SMEs that have worked on R&D projects.

What constitutes R&D tax fraud?

The R&D tax relief scheme is predicted to cost the treasury nearly £10 billion by 2027-28. With such large sums of funding available, the system has been the target of abuse by fraudulent agents and criminal gangs. HMRC figures have shown that the error and fraud rate attributed to the SME scheme alone amounted to 24.4% in 2021-22.

HMRC assesses R&D tax relief claims on a compliance basis, with both error and fraud constituting a judgement of non-compliance. If HMRC observes similar mistakes made by large numbers of claimants, it will contact those customers in the first instance to prompt them to correct any errors.

However, if complex non-compliance is identified, specialist staff undertake more detailed examinations of the claims. HMRC’s R&D Anti-Abuse Unit investigates suspected deliberate attempts to abuse the system, while HMRC’s Fraud Investigation Service works on cases where criminal intent is suspected.

R&D Tax Fraud and the Law

Carried out on a large scale, R&D tax fraud can net businesses millions in tax deductions – which is something HMRC has been focusing on for some time. All types of businesses can be investigated for fraudulent claims. Even tax advisers who assist in fraudulent R&D claims will be subject to investigation.

What can put you at risk of R&D tax fraud?

There are a wide range of instances that can put you and your business at risk of R&D tax fraud and a subsequent enquiry from HMRC. These include claiming under the wrong scheme or for projects that fall outside the scope of science and technology. Incorrect claims for staff, subcontractor or consumables costs will also put you at risk.

Blatant attempts to abuse the system will inevitably lead to an enquiry. However, many instances of carelessness can also prompt HMRC to take action. For instance, failing to provide sufficient evidence, check claims, or provide detailed explanations of complex project details may trigger a response from HMRC’s investigators.

Penalties for R&D Tax fraud

While the penalties for innocent mistakes are less, those regarding deliberate and fraudulent tax errors can face up to 100 per cent of the understated tax liability. This amount may also be subject to interest.

Have you been accused of R&D Tax Fraud?

R&D tax fraud cases can be complicated. While there are many examples of out-and-out fraud, there are also many organisations that have mistakenly committed R&D tax relief fraud.

While tax relief is sought to cover a range of projects, HMRC is strict with what constitutes R&D – and therefore businesses risk fraudulent behaviour if they do not follow the exact conditions of the tax credits.

If you have been suspected of R&D tax fraud, contact us immediately to discuss your case with our R&D tax fraud solicitors. We have more than 30 years of experience in providing legal advice about business investigations.

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