Key highlights from HMRC’s Annual Accounts and Charter Reports on R&D Tax Credits

Earlier this month, HMRC graced us with not one, but two reports: their Annual Accounts and the Charter Report. These documents provide an overview of HMRC's performance, commitments, and key insights into the ongoings at HMRC. This year’s documents feature quite a bit about R&D! Here are a few highlights: 

• Cost of the relief: HMRC administered R&D tax reliefs totalling £7.7 billion, a slight increase from £7.6 billion in the previous year. This indicates a slowdown in the growth of R&D tax relief in this period. Is this a direct impact of HMRC's stringent compliance measures discouraging companies from claiming these credits... 
• Processing Times: The introduction of the Additional Information Form (AIF) has helped maintain the speed of processing, with over 80% of claims processed within 40 days. However, many advisors report that some claims are still slipping through the nets and remain unpaid beyond this period, which is not acceptable. 
• Compliance checks: HMRC's efforts to target non-compliant claims have led to a reduction in error and fraud levels to 7.8% in 2023-2024, down from 13.3% in the previous year for the SME scheme. This represents a significant reduction in non-compliant claims, highlighting HMRC's success in tightening compliance controls. However, some genuine claimants may be caught in this net, with some giving up their claims or having them dismissed unnecessarily. While we welcome these measures, as we have seen the poor quality of some submissions by rogue boutique firms, it's crucial to ensure genuine claims are not unfairly penalised. 

The Charter Report evaluates HMRC's performance against its published charter, with feedback from agents and taxpayers: 

• Treating You Fairly: HMRC scored 5.0 out of 10, with R&D cases frequently cited as examples of erratic and unfair treatment. 
• Keeping Your Data Secure: Criticisms were directed at some R&D enquiry letters for including cut-and-pasted information from other taxpayers. 
• Mutual Respect: HMRC received a score of 5.6 out of 10, with comments on aggressive written communications and poor handling of R&D enquiries by some case workers. 

Some very interesting insights in to the current state of HMRC here and particularly R&D, its clear that the broad brush approach to compliance checks are impacting service quality levels. Whilst these measures are having the desired impact fiscally, its clear that some are being caught in the crossfire and its tarnishing the reputation of the scheme. 

As we look ahead to the upcoming budget on 30th October, it will be interesting to see if further changes are introduced to improve the balance between compliance and support for businesses.