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HMRC reveals £100m of fraud and error in financial services R&D claims
Revised error estimates show 59 per cent of R&D claims by financial services SMEs were non-compliant.
HM Revenues & Customs (HMRC) has found £100m of fraud and error in R&D tax relief claimed in the financial services.
It found 2,900 claims for R&D tax relief by small and medium-sized financial services businesses in 2020-21, valuing £350m.
Having originally estimated 3.6 per cent of claims to show fraud and error for both R&D tax relief schemes (SME and RDEC) across all sectors, a report showed the actual level to be 16.7 per cent, or £1.13bn for 2020-21.
Revised estimates for financial services SMEs specifically showed 59 per cent of claims as wholly or partially non-compliant, and 41 per cent as compliant.
“The estimated level of compliance in R&D claims among financial services companies and fintechs is below average when compared to businesses across all sectors, so it’s likely that HMRC will keep the sector under its spotlight,” BDO Innovation partner Carrie Rutland said.
“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.”
The tax authority is introducing new checks on claims from 1 August onwards, with additional forms to allow HMRC to quickly assess the validity of claims made and the expertise of the R&D agent.
“[I]n many instances, companies will need to plan more carefully for their R&D tax claims and put in place new processes to collect the right information, first time, to support their R&D claims,” Rutland continued.
“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.”