The UK’s £8 billion-a-year R&D tax credit scheme is facing a major shake-up as the government moves to tackle widespread fraud and error while improving accessibility for genuine claimants.
Proposals outlined in a consultation published alongside the Spring Statement suggest that businesses may soon be required to obtain formal pre-approval — or “advance assurance” — for research and development (R&D) claims before submitting them to HMRC. Currently a voluntary option, advance assurance is used by relatively few companies.
The Treasury said the move could significantly reduce fraudulent and non-compliant claims, which have become a growing concern in recent years. Between 2020 and April 2023, HMRC estimates that £4.1 billion in taxpayer money was lost to fraud and error in the R&D tax relief system.
The proposed reforms are also a response to criticism from entrepreneurs and employer groups, who say the scheme has become increasingly difficult to navigate due to heightened compliance scrutiny. Some legitimate businesses report being denied support or asked to repay funds, while poorly reviewed claims continue to slip through.
“Non-compliant claims are sometimes made in the hope that HMRC will not identify them,” the government said. “Mandatory assurances in areas with a high degree of non-compliance may be the best way to meet our objectives of reducing fraud, improving customer experience and offering certainty to businesses.”
Scrutiny of R&D claims has increased significantly since 2022. The proportion of claims being checked rose from 10 per cent to 17 per cent in the past year. HMRC now has over 500 staff dedicated to R&D compliance — a five-fold increase from 2020.
The tax credit scheme, designed to incentivise innovation in science and technology, has come under fire after a 2022 Times investigation uncovered widespread abuse. Some advisors were found encouraging dubious claims, including tax relief for a vegan menu at a pub. Since then, HMRC has been under pressure to strengthen oversight without stifling genuine innovation.
Rufus Meakin, author of the R&D Tax Credit Insider blog, welcomed the proposal as “a step in the right direction” but cautioned that HMRC still lacks the technical expertise required to assess claims across a diverse range of sectors.
Carrie Rutland, R&D tax partner at accountancy firm BDO, added: “This would go a long way to tackling the high prevalence of fraud and error we’ve seen. But HMRC must be properly resourced with qualified R&D inspectors to process assurance requests quickly — otherwise the system risks grinding to a standstill.”
While advance assurance could reduce uncertainty for companies and offer a clearer path through the claims process, the success of the reform will hinge on HMRC’s ability to deliver both technical rigour and efficiency in implementation.
The consultation is part of a broader push to simplify and safeguard one of the UK’s most significant business tax incentives — one seen as vital to driving investment in innovation at a time of low productivity and global competition.
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HMRC considers overhaul of £8bn R&D tax credit scheme amid fraud concerns