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2 minute read • published in partnership with BDO

HMRC uncovers £140m of fraud and error in manufacturing R&D claims

A new report from HMRC has revealed £140m of fraud and error in R&D tax relief claimed by SMEs in the manufacturing sector in 2020-21.

The new figures have been released ahead of the introduction of tighter rules which come into force from August this year. According to the report, there were 18,500 claims for R&D tax relief by small and medium-sized manufacturing firms in 2020-21, with a total value of £820m.

HMRC’s revised estimates of error and fraud by sector show that 31% of R&D claims by manufacturing SMEs were judged as either wholly or partially non-compliant, with 69% judged to be compliant. The overall level of error and fraud for both R&D tax relief schemes (SME and RDEC) across all sectors of the economy was estimated to be £1.13bn for 2020-21, equivalent to 16.7% of claims, significantly higher than HMRC’s previously published estimate of 3.6%.

A new report from HMRC has revealed £140m of fraud and error in R&D tax relief claimed by SMEs in the manufacturing sector in 2020-21 / Picture: Getty/iStock

The tax authority will introduce a range of new checks on claims from 1 August 2023 onwards. Claimants or their R&D advisers will have to fill in an Additional Information Form which is designed to allow HMRC to quickly assess the validity of any claim and the level of expertise of any R&D agent used to prepare the claim. HMRC has also risk-profiled claims across the different business sectors and by size of claim.

Eyad Hamouieh, a tax partner at BDO, said: “The estimated level of compliance among manufacturing companies is higher than for businesses in other sectors. However, the high numbers of claims for R&D tax relief from manufacturing companies will mean HMRC will keep the sector under its spotlight.  While there will undoubtedly be more red tape for companies claiming R&D relief in the future, HMRC’s own figures suggest that this will continue to be a generous relief – worth some £9.5bn in 2027-28. However, in many instances, companies will need to plan more carefully for their R&D claims and put in place new processes to collect the right information, first time, to support their R&D claims. Those businesses facing an enquiry into their R&D claims are also advised to take expert advice from specialists in dealing with R&D investigations.”

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