HMRC sends 'nudge' letters to 2,000 companies about R&D tax evasion

The move is part of a government-wide drive on incorrect and fraudulent R&D tax claims, which cost the government £469 million last year.

According to reports, the UK Revenue Service has sent letters to 2,000 businesses in response to fraudulent and incorrect claims to R&D tax relief programmes.

HM Revenue and Customs (HMRC) cautioned businesses in January that they could face formal tax investigations and claims rejection if their filings were deemed to be erroneous for any reason.

According to the revenue service, taxpayers should review their relief claims, identify any mistakes, and make any necessary changes as quickly as feasible.

The HMRC letters told companies: “We’ve seen an increase in fraudulent claims for R&D tax relief. We also believe companies in your sector are being deliberately targeted by third parties to make inaccurate R&D claims as an amendment to their company tax returns.

“As company director, it’s important you submit accurate claims for the correct amount of tax relief,” the letters added. “If we check a claim and find it’s incorrect, your company might be asked to pay back the full amount.”

Carrie Rutland, partner at BDO's innovations and technology team in the UK, believes HMRC will continue to issue similar nudge letters and that the window of time to address past claims may be narrowing.

“It’s important for all businesses to review their past R&D claims to make sure there are no potential skeletons in the company closet,” said Rutland.

“It’s always better to make a voluntary disclosure for errors before you are nudged by HMRC, as this should be treated as an ‘unprompted’ disclosure which carries a much lower penalty – if any,” she added.

In its annual report for the fiscal year 2021-22, HMRC estimated that £469 million ($570 million) was lost due to fraud and error in its two R&D schemes. This amounted to 4.9% of corporate tax R&D relief.

The UK government has responded by expanding HMRC resources in order to increase compliance. For example, the revenue service has more than doubled the size of its specialised R&D staff focused on SMEs' compliance.

The 'nudge' letters were distributed by HMRC during the weeks of January 23 and January 30, with the goal of raising awareness of the issue.

The UK government is launching a consultation on combining the R&D tax relief schemes into a single, more straightforward programme. Businesses have until March 13 to submit their comments.

By fLEXI tEAM