HMRC hunting £612m in R&D tax relief repayments

HMRC is trying to recover over half a billion pounds in questionable research and development (R&D) tax relief underpayments claimed by large UK businesses

The £612m figure relates to falsely underpaid R&D tax reliefs reveals analysis by BDO. The large amount of tax under dispute, described by HMRC as ‘tax under consideration’, shows that businesses need to be careful when claiming R&D tax reliefs to avoid potentially expensive and unnecessary tax disputes.

Eyad Hamouieh, partner at BDO, said: ‘HMRC’s tough stance on the misuse and over-claiming of R&D tax credits will no doubt become an area of increased focus.

‘Whilst some businesses are getting into a fix by over-claiming, many more businesses are failing to claim the money they are entitled to.’

HMRC is also targeting businesses for £90m in underpaid tax relating to patent box claims in 2018/19, up 15% from £78m in 2017/18.

Patent box allows companies to pay tax at an effective rate of 10% on patent-related profits, as opposed to the standard rate of corporation tax of 19%.

BDO says identifying the profits that result directly from a patent can be confusing, leading to businesses over-claiming the patent box relief.

The firm also claims that one problem has been the growth in unregulated tax boutiques offering advice to businesses on how to maximise their tax rebates. This may be leading to companies misusing the system.

Hamouieh said: ‘Opaque regulations and unscrupulous advice may be reducing the appeal and damaging the reputation of otherwise highly-credible tax reliefs.’

There are two separate R&D tax relief schemes available to businesses in the UK, depending on the size of the company, these schemes are the SME R&D relief and research and development expenditure credit (RDEC) for larger firms.

In total, R&D tax credits are worth more than £4.3bn to UK businesses. BDO says it is one of the most generous tax breaks that UK businesses can benefit from.

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