HM Revenue & Customs (HMRC) has significantly increased the number of Research and Development (R&D) tax relief claims it has “corrected” using controversial powers, sparking concerns that the tax authority is bypassing due process.
New data obtained by accountancy firm Price Bailey through a Freedom of Information request reveals that HMRC’s Fraud Investigation Service (FIS) amended 2,440 claims for R&D corporation tax relief in 2024 (as of 12 November)—a nearly fourfold increase from 670 claims in 2023. These amendments were made under Schedule 18 Paragraph 16 of the Finance Act 1998.
Price Bailey reports that HMRC established a dedicated FIS team in July 2022 to combat R&D tax relief fraud. However, rather than opening formal enquiries into suspect claims, HMRC has been “correcting” claims under its statutory powers—raising concerns that many legitimate claims are being rejected without proper scrutiny.
Taxpayers who have had their claims amended are still weighing whether to accept the changes or contest them. Many have received letters from FIS warning them that their claims “triggered an alert” and that HMRC “believes that you have fraudulently claimed money to which you are not entitled.”
The controversy has intensified following HMRC’s recent consultation, launched on Budget Day, titled The Tax Administration Framework Review – new ways to tackle non-compliance. The consultation suggests the government may seek to revise legislation, making it harder for businesses to dispute HMRC’s amendments to R&D claims.
Gemma Thake, Tax Partner at Price Bailey, argues that HMRC’s approach is flawed and could lead to legitimate claims being unfairly rejected. “HMRC has very limited powers to amend tax returns where there are obvious errors or omissions without opening formal enquiries. The Fraud Investigation Service, as the name suggests, only gets involved where fraud is suspected. If HMRC suspects fraud, clearly these are not errors or omissions, in which case HMRC should be opening formal enquiries,” Thake said.
She criticised HMRC’s reliance on risk profiling rather than case-by-case assessments, saying: “What seems to be happening in many cases is that HMRC is making blanket determinations about claims based on risk profiling of the claimants, rather than acting on specific information about individual claims, which is what it should be doing.”
Thake warned that while HMRC’s crackdown on fraud is necessary, the current approach risks deterring genuine businesses from claiming R&D relief.
“This sweeping approach could mean that a lot of perfectly valid claims get caught in the net. Many legitimate claimants are likely to be too intimidated to challenge HMRC’s amendments,” she added.
With HMRC promising to introduce an R&D disclosure facility later this year, businesses are left in limbo as the tax authority continues to apply what Thake describes as an “informal amnesty.”
“The deterrent effect of the penalty regime depends upon tax losses resulting from deliberate wrongdoing or careless errors being tackled fairly on a case-by-case basis,” she said. “HMRC has promised an R&D disclosure facility by the end of this year but has effectively been operating an informal amnesty in the meantime.”
With businesses and accountants raising concerns over HMRC’s aggressive tactics, the outcome of the government’s consultation could have far-reaching implications for companies claiming R&D tax relief in the UK.
