HMRC’s ‘aggressive’ stance on tax fraud risks stifles innovation

The advisers warn that the UK tax authority’s “aggressive” and fragmented approach to curbing fraud in the tax credit scheme risks hindering policy to promote software innovation and manufacturing between businesses.

The research and development tax relief scheme allows small companies to claim between a quarter and a third of their spending on specific projects.

An increase in fraudulent claims has been witnessed HM Revenue & Customs this year released more than 1,000 letters in response to claims flagged by its system as “high risk”.

But according to experts, an increase in bad actors trying to exploit the tax credit program has led to a poorly targeted crackdown by HMRC and lengthy delays in paying tax credits. legitimacy, affecting cash flow.

Craig Mackinlay, a Tory MP and member of the House public accounts committee, said he had to “help within my constituency to cut down on HMRC’s undue delay.” .

Mackinlay, a chartered tax advisor, adds: “The aggressive language often used in HMRC letters is not helpful in fostering a lasting relationship between businesses and tax authorities.

Jenny Tragner, director of tax consulting firm ForrestBrown, says that while the agency’s efforts to crack down on illegality allegations are welcome, a “really tough approach. . . not well targeted. . . will probably only gain jobs that scare away many businesses.”

James Greary, head of corporate tax for the accounting firm Randall and Payne, described HMRC’s “distributed gun approach” as the “wrong approach” to tackling fraud.

According to official estimates, R&D tax relief fraud is expected to cost the Treasury £469 million in the last financial year.

Two letters sent by HMRC, once seen by the Financial Times, have the same sample wording, saying: “The complaint triggered an alert on our system and led HMRC to believe that you had fraudulently obtained the number. money you are not entitled to. “

Responding to a response from a small business to the first letter, also seen by the FT, HMRC said “no charges have been made” and described the letter as “a standard standard letter sized triggered by our system asking you to provide supporting documents against your claim”.

“What the first letter says, and what the second letter says it means, is not what an agency is responsible for,” said Stephen Harvey KC, specialized criminal law attorney at 3PB Chambers. duty to do”.

In response, HMRC said it has received more than 8,000 claims under the plan since April of this year.

It added that an increase in fraudulent claims has prompted it to “perform additional checks” and that “we have written to individuals whose claims have been identified as high-risk, to request request more information and determine the validity of their claim”.

Daryn Park, senior policy adviser at the Small Business Federation trade group, said it was likely some companies had made a “real mistake”.[s]“In filing a complaint, add that “limited late payment” [small companies’] cash flow and have a big effect”.

HMRC last month said it was extending the 28-day payout cycle for claims, adding that it was “working hard to recover from the recent payment pause and expects to process 80% requests within 40 days by the end of August 2022”.

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