Eight arrested for R&D fraud is the ‘tip of the iceberg’
As part of a clampdown on the misuse of research and development (R&D) tax credit, HMRC has arrested a gang commiting R&D fraud claims worth millions.
Eight people have so far been arrested over the alleged “organised criminal attacks” on the government tax incentives which are meant to spur investment in technology and innovation.
The individuals involved are alleged to have arranged more than 100 sham claims worth in excess of £16 million, and to have laundered the proceeds.
The arrests were made last month after a group of 130 officers from HMRC’s Fraud Investigation Service executed warrants across multiple locations across England. A tax agent suspected of criminally facilitating the fraudulent attack was among those arrested.
Just the ‘tip of the iceberg’
The arrest of these individuals forms part of a wider investigation into attacks on the schemes and more arrests are expected.
Sentiment amongst R&D professionals with integrity, financial commentators and HMRC has for some time been that there is widespread misuse of the scheme.
The Times recently reported that an investigation they carried out uncovered reports of companies claiming tax credits for blueberry croissant recipes, designing vegan menus and even a launderette that adjusted the temperature of their washing machines!
HMRC tackling misuse
HMRC have been focussing on tackling misuse of the scheme and R&D fraud for some time now. Earlier in the year we saw a rise in abuse of R&D tax reliefs lead to the temporary suspension of all R&D payments as HMRC extended the verification time and strengthened its checks for fraudulent claims.
Commenting on this action, HMRC said that: ‘By acting quickly to pause payments and implement additional checks on claims, we have protected £46m of public money. We have also arrested eight people suspected of conspiring to submit over 100 fraudulent R&D relief claims, including a tax agent suspected of criminally facilitating the fraudulent attack.’
HMRC added that: ‘Claims are checked for suspected fraud and since April 2022, more than 1,600 claimants have been asked for more information to validate their claim. More than 80% of these claims have not been paid out as a result of our checks.’
Reforms to reduce the level of R&D fraud
R&D tax reliefs are being reformed and HMRC believes that these changes will help further reduce abuse. In future, claimants will have to provide additional information covering the content of their claim and the nature of the R&D, be endorsed by a named senior officer of the company and include details of any agent who has advised the company on the claim.
Currently the government is committed to the R&D scheme which is designed to drive genuine business innovation and gives companies significant tax benefits they invest in R&D. There has been some speculation that the programmes might be considered for cuts at the fiscal statement later this month but currently it is a case of ‘wait and see’.
Government concerns over some advisors
Whilst the government is concerned about criminal attacks on the schemes, separately it is also concerned about some advisors who they fear are encouraging companies to submit dubious claims.
The schemes are supposed to support investment intending to overcome scientific or technological uncertainty and that are seeking an advance in science or technology that could not easily be worked out by a professional in the field.
The additional scrutiny and forthcoming reforms are intended to deter dubious claims amid concerns about some advisors who tell companies the schemes amount to “free cash” and that HMRC rarely challenge claims.
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Cowgills are experts in R&D tax claims, with over 15 years’ experience in reviewing, managing, and submitting successful claims. Now more than ever it’s essential that when submitting a claim for R&D tax credits you have an advisor with integrity, expertise, and experience.
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The information was correct at time of publishing but may now be out of date.