HMRC has revealed £110m of fraud and error in R&D tax relief claimed by SMEs in the construction sector in 2020-21.
The figures are published in a new report ahead of tighter R&D rules coming into force in August.
According to the report, there were 7,600 claims for R&D tax relief by SME construction firms in 2020-21, with a total value of £260m.
HMRC’s revised estimates of error and fraud by sector show that 62% of R&D claims by construction SMEs were judged as either wholly or partially non-compliant. Only 38% were judged to be compliant.
The overall level of error and fraud for both R&D tax relief schemes (SME and R&D expenditure credit) across all sectors of the economy was estimated to be £1.13bn for 2020-21. That is equivalent to 16.7% of claims, significantly higher than HMRC’s previously published estimate of 3.6%.
Changes from August
HMRC will introduce new checks on claims on 1 August 2023. From that date, claimants or their R&D advisers will have to complete an additional information form designed to allow HMRC to quickly assess the validity of any claim and the level of expertise of any R&D agent used to prepare the claim.
The tax agency has also risk-profiled claims across the different business sectors and by size of claim.
Tax partner at accountancy consultancy BDO LLP, Steven Levine, said: “Given that the estimated level of compliance among construction businesses is relatively low when compared to businesses in other sectors, it’s likely that claims for R&D tax relief from construction companies will continue to be under close scrutiny by HMRC.
“While there will undoubtedly be more red tape for companies claiming R&D relief in the future, HMRC’s own figures suggest that this will continue to be a generous relief worth some £9.5bn in 2027-28. However, in many instances, companies will need to plan more carefully for their R&D tax claims and put in place new processes to collect the right information, first time, to support their R&D claims.
“Those businesses facing an enquiry into their R&D claims are also advised to take expert advice from specialists in dealing with R&D investigations.”
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