- Rejecting valid filings, delaying payments, and seizing back tax credits
- Government’s flagship scheme provides financial lifeline to many small businesses
- The plan is key to the government’s plans to turn the UK into a “tech superpower” by 2030
HM Revenue & Customs is under fire for stifling businesses by denying genuine applications for research and development tax relief by innovative small businesses.
The taxman is rejecting valid filings, delaying payments and taking back tax credits as part of a broader attempt to crack down on fraud, multiple sources told The Mail on Sunday.
The Government’s flagship scheme provides a vital financial lifeline for many start-ups and small businesses that need financial support to grow.
The plan is key to the government’s plans to turn the UK into a “tech superpower” by 2030.
HMRC estimates that more than 90,000 businesses claimed £7.6bn in R&D tax relief in 2021-22.
Tough focus: HM Revenue & Customs is under fire for stifling business by denying genuine requests for R&D tax breaks from innovative small firms
But the tax authority also estimates that more than £1bn of that amount was paid to fraudsters or in error.
It recently adopted a much stricter approach to complaints and now reviews one in five applications, compared to one in 100 previously. Experts warn that this increasingly onerous regime is leading to genuine claims being dismissed and could force future tech champions to move abroad.
“There is a real risk that the handling of some R&D tax relief claims is undermining the government’s own policy of supporting investment here in the UK,” said Natasha Frangos, managing partner at accountancy firm Haysmacintyre.
“We should remove obstacles to innovation, but this is an obstacle rather than a help.”
HMRC has hired hundreds of people to enforce the crackdown, prompting howls of protest from businesses and their advisers at the way some claims are being torpedoed. They say newly hired caseworkers are poorly trained, inexperienced and assume applications are fraudulent unless proven otherwise.
“Nobody has faith in the system anymore,” said tax credit adviser Vicky Kwenda.
He cites the case of a defense customer who developed a camera that operates at temperatures as low as -30°C.
HMRC rejected a £70,000 claim for R&D tax relief because it argued that there were “similar” cameras available, although none of them operated at temperatures below -15C. Its appeal was rejected because “similar” technologies operated at temperatures between -400C and -1500C, HMRC said.
“Common sense would tell you that these numbers seem wrong,” Kwenda said. “The reviewer mixed up data related to the temperatures a thermal camera can capture with data related to the ambient temperatures the camera can operate in.”
HMRC declined to comment on specific cases, but chief executive Jim Harra recently told MPs his staff were not tech-savvy.
“My people are tax inspectors. They are not software engineers or rocket scientists,” he said.
Two-thirds of HMRC queries come after R&D tax credits have been granted, according to Adam McCann of Claimer, whose software helps file and manage claims. In one case, a genuine claimant had to pay back £300,000 while junior workers played the role of “judge, jury and executioner”.
An HMRC spokesperson said the tax authority recognized the importance of R&D in driving innovation and economic growth.
The claimants went through a “risk screening process” and most received payment without any consultation, the spokesperson said. “All claims are handled professionally by colleagues with the relevant level of experience.”