According to HMRC’s latest Annual Report and Accounts for 2023-24, there’s some good news: the error and fraud rate for the R&D tax relief scheme has dropped significantly! Back in 2021-22, it was at 17.6%, which translated to £1.34 billion of the relief’s total cost. Fast forward to 2023-24, and we’re looking at an estimated 7.8%.
This is a big step forward and shows that HMRC’s recent compliance measures and reforms are starting to pay off. While this number is still an estimate, it’s encouraging, and we at EmpowerRD are happy to see it. We’ve always advocated for reforms that tackle errors and fraud, and it’s great to witness progress in this area.
Significant reduction in error and fraud
Curious about how the overall error and fraud rate dropped from 17.6% in 2021-22 to just 7.8% in 2023-24?
The SME Scheme saw a significant improvement:
- 2021-22: The error and fraud rate was 25.8%, which amounted to £1.20 billion of the total SME scheme expenditure.
- 2023-24: While still high, it’s now down to 14.6%, showing great strides in compliance and accuracy with claims.
And the RDEC Scheme nearly halved its rate:
- 2021-22: The error and fraud rate stood at 4.6%, equating to £0.13 billion.
- 2023-24: That rate has slipped to 2.8%, reflecting successful compliance measures for larger companies.
These numbers don’t just look good! They show that more legitimate, compliant, and robust claims are being submitted. This drop not only helps keep the integrity of the R&D tax relief schemes but also makes sure that companies working on innovative projects get the support they deserve.
Compliance measures driving change
The big reduction in error and fraud can be attributed to several key measures introduced by HMRC:
- Digital submissions are a must: Starting 1 April 2023, all claims need to be submitted digitally. This rule became official on 8 August 2023, meaning every claim must now come with an additional information form (AIF) that gives more details about the claim, including info about the advisor. At EmpowerRD, embracing a digital process has been core to our work since 2017. It’s great to see it paying off!
- Increased checks and random enquiries: HMRC has stepped up the number of compliance enquiries into R&D claims. With a new random enquiry program in place to review a sample of claims, they’ve got better at spotting and reducing fraudulent submissions.
- Tougher legislative updates: The Finance Act 2023 has changed the rates of relief, making the RDEC scheme a more attractive option compared to the SME scheme. This shift is all about aligning the level of scrutiny and cutting down on the higher error rates we’ve seen with the SME scheme historically.
Tackling errors and mistakes
Interestingly, the report noted that most claims are turned down because of errors and mistakes, not intentional fraud. This highlights just how important it is to team up with knowledgeable and experienced R&D specialists who can help you navigate a scheme that has changed a lot over the past few years.
At EmpowerRD, we’re proud of our expertise and our mission to assist clients in submitting accurate and compliant claims. Since 2017, we’ve always recognised the complexities of the R&D scheme and have worked diligently to ensure our enquiry rate is low and that all our clients’ claims adhere to HMRC’s strict guidelines. Since our beginning, we’re proud to report just a 3.45% enquiry rate across all claims.
Future Considerations and Impact
While the progress made by HMRC is encouraging, the full impact of these actions will not become clear until 2024-25 and beyond. As HMRC continues to refine its compliance processes and evaluate the effectiveness of recent legislative changes, it will be crucial to ensure that the steps being taken are adequate and balanced.
Ensuring that legitimate claims are not deterred by overly stringent measures is crucial for maintaining the balance between rigorous compliance and encouraging innovation.
Get in touch
If you think you could use an extra pair of hands for the additional details you’re now required to provide, we at EmpowerRD are happy to help. With our R&D tax specialists and user-friendly platform, your R&D tax credit claim will be in good hands. Get in touch and let’s see how we can help you succeed.
