This blog was co-authored by Mike Rainford and Elisha Kaur.

What is the scheme?

The Research and Development Tax Relief supports all companies specialising in emerging projects in the science and technology sector. Companies may be able to claim Corporation Tax relief if their project meets the below definition of Research and Development for tax purposes.

To claim the relief, business must explain how the project fulfils the following criteria to develop a new process, product or service;

1. looked for an advance in the field
2. had to overcome the scientific or technological uncertainty
3. tried to overcome the scientific or technological uncertainty
4. could not be easily worked out by a professional in the field.

Recent changes in the schemes

Since 1 April 2024, the scheme has now been merged for all companies and companies, operating within the eligible trading companies, are now able to claim the relief as a taxable expenditure credit. However, over recent years, HMRC has significantly increased the level of scrutiny against a company’s Research and Development claims resulting in various claimants now being denied tax relief.

Abuse of the Schemes

Due to the higher level of scrutinization, companies are now beginning to face criminal allegations in respect of Fraud. As described by HMRC, "The term ‘error and fraud’ includes [a] full range of behaviours, from mistakes and failure to take reasonable care, through to deliberate non-compliance” . 

Recent research by HMRC has revealed that £4.1bn has been misused since the Research and Development schemes were introduced in 2020. Companies are now suffering adverse consequences on their business affecting their profitability, cash flow and further development prospects. Companies, in particular Small Sized Enterprises (SMEs), are now facing various enquiries with HMRC to ensure that claims are non-fraudulent. But with the consistent changes in the scheme criteria, companies are struggling to understand what the agencies are seeking to confirm within the claims.

Future of R&D

Following the changes in the country’s leadership, it will be interesting to see how the newly elected government try to tackle false claims within the schemes. One option which has been floated by the Party is scrap short funding cycles for key research and development institutions in favour of ten-year budgets.