Recent cases highlight rising R&D tax relief misuse
The UK’s research and development (R&D) tax relief scheme has long supported innovation by offering valuable tax incentives to businesses investing in technological or scientific progress. However, recent developments suggest HMRC is stepping up its compliance activity, placing more claims under the spotlight and challenging businesses to prove eligibility.
Spotlight on football clubs raises questions
HMRC is currently investigating 33 professional football clubs, including several Premier League clubs, over suspected misuse of the R&D scheme. The clubs are believed to have claimed a combined £17 million, prompting concerns about whether these claims genuinely meet the scheme’s criteria.
Brentford FC has defended its position, citing collaboration with PhD researchers and the publication of peer-reviewed academic studies. However, HMRC has made it clear that R&D claims must show a contribution to wider scientific or technological knowledge, not simply deliver commercial benefit to the organisation making the claim.
Increased scrutiny is affecting all sectors
The football investigation is just one example of a broader trend. Across all industries, HMRC is tightening its approach to R&D compliance. More than £1.1 billion in R&D tax relief claims were found to be either erroneous or fraudulent in the 2020–21 tax year.
To tackle this, HMRC has expanded its compliance team, increased the volume of claim checks, and introduced stricter documentation requirements. These changes mean even fully compliant businesses are experiencing longer processing times and higher chances of being selected for review.
What the Realbuzz case tells us
The recent First-tier Tribunal case Realbuzz Group v HMRC illustrates how important it is for businesses to provide full and timely information in support of R&D claims. In this case, HMRC issued a discovery assessment to challenge a past claim. However, the tribunal ruled in favour of the taxpayer.
It found that HMRC had already been in possession of enough information during the original enquiry window to question the claim but failed to act within the required timeframe. As a result, the assessment was invalid.
This outcome highlights two key points. First, it is essential to disclose project details clearly and comprehensively. Second, HMRC’s ability to challenge claims retrospectively is not unlimited if businesses comply fully from the outset.
A limited window to correct past errors
In response to widespread concerns about misuse of the R&D tax relief scheme, HMRC has introduced a dedicated R&D disclosure facility. This allows companies to voluntarily correct historical overclaims before HMRC initiates an investigation.
The facility is available to companies where an innocent or careless error was made in the R&D claim, the time limit for amending the tax return has passed, and additional Corporation Tax is due or overpaid tax credits need to be repaid.
Key benefits of using the disclosure facility include:
- Reduced penalties: Voluntary, unprompted disclosures can attract more favourable terms, with careless unprompted disclosures potentially reduced to a 0% penalty.
- Peace of mind: Companies that may have been misled by unscrupulous R&D agents can correct their claims.
- A structured approach: Businesses have a clear framework for calculating and settling any liabilities.
However, it is important to note that the R&D disclosure facility does not offer specific incentives or protections, such as immunity from criminal prosecution, where errors arise from fraudulent or deliberate behaviour. In such cases, businesses may wish to consider HMRC’s Contractual Disclosure Facility (CDF), which is entirely separate from the R&D facility. The CDF is designed for deliberate tax fraud and provides immunity from prosecution only in respect of what has been fully disclosed.
Time limits for disclosures are as follows:
- Four years from the end of the relevant tax period if reasonable care was taken.
- Six years if the error was due to carelessness.
- Twenty years for deliberate errors, where CDF should be seriously considered.
When submitting a disclosure, businesses will need to calculate the full amount owed, including Corporation Tax and any fees paid to agents, interest charges on late payments, and penalties, which vary depending on behaviour and the timing of disclosure.
What businesses should do now
Given the rising risk of enquiry and delay, businesses should take extra care when preparing R&D claims. We recommend:
- Assessing eligibility thoroughly
Ensure projects seek to resolve technological or scientific uncertainty, and not just routine commercial problems. - Keeping clear records
Document project objectives, challenges faced, technical approaches and the evidence of advancement achieved. - Seeking experienced advice
Work with qualified, regulated R&D tax specialists who understand current compliance expectations. - Acting early on errors
If you believe a past claim may be incorrect, voluntary disclosure can reduce the risk of penalties or interest charges.
Contact a specialist
If you think your company may need to make a disclosure, it’s important to gather all relevant documentation and seek expert advice.
Azets has extensive experience supporting businesses through the R&D tax relief process. Our dedicated teams across R&D and Tax Investigations & Dispute Resolution work collaboratively to ensure claims are accurate, compliant, and properly supported. Whether you need help reviewing current claims, addressing potential issues, or making a voluntary disclosure, we are here to guide you through every step.
We can help assess the strength of your claim, identify areas of risk, and manage all correspondence with HMRC on your behalf.
If you have concerns about your R&D tax relief position or HMRC’s increased scrutiny, please get in touch using the form below or speak to your usual Azets contact.
