The Chartered Institute of Taxation (CIOT) is warning that HMRC’s efforts to tackle abuse of the R&D tax relief system are resulting in them rejecting legitimate claims and stone-walling others.

In a letter to HMRC, the CIOT wrote that the ‘volume compliance’ approach adopted by the tax authority since the second half of 2022 does not work because of the complex nature of the relief.

Ellen Milner, CIOT director of public policy, said: “We are receiving a large number of reports about the difficulties being encountered by firms carrying out genuine R&D.

“Valid claims are being rejected and businesses are being deterred from challenging HMRC by the disproportionate financial and time cost of doing so.

The volume compliance approach is based on frequent challenge and standardised letters with little or no opportunity for businesses and their advisers to explain the R&D activity they were engaged in.

It’s part of a drive to reduce error and abuse within the scheme, which, in HMRC’s 2021/22 annual report and accounts document, was shown to equal 4.9% of total R&D tax relief expenditure.

However, Milner also recognised that “HMRC has recently engaged with us to discuss our concerns”.

HMRC intends to publish a compliance action plan that addresses some of the issues raised by CIOT and others, though as yet no timeline has been announced.

Our View…

R&D can be extremely valuable to a business, but is becoming an increasingly complex area, and, as above, there are businesses who have stopped making claims as a result. 

Our advice is to be absolutely sure that your claim is valid, which we can help you with, but beyond that point, don’t be put off!

We can help you, or can introduce you to external specialists in the field, though the fee structures for these tend to mean they’re more suitable for larger businesses.

We’ll continue to keep clients, and this site, up to date for the latest announcements as they’re made. R&D is definitely going to be a developing subject over the coming months!