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R&D Tax Statistics: How Have HMRC’s Compliance Measures Worked Out So Far?

Over the past few years, HMRC has substantially reformed R&D tax relief. The department has increased staffing levels, introduced mandatory disclosure requirements, and revised relief rates. The stated objective was to maintain the scheme's appeal to genuine claimants while reducing fraud and error.

HMRC’s latest statistics are the first that include an MREP estimate that takes account of policy and operational changes made since 2022 in response to the levels of error and fraud.

The statistics provide insight into how these measures are performing.

What compliance measures were introduced?

In 2020, HMRC began an investigation into the rate of error and fraud in the R&D tax credit scheme. In October 2024, HMRC released a comprehensive analysis of this investigation, describing their methods and their estimates of error and fraud in the scheme.

This analysis had an estimated value of non-compliant claims of £1.2 billion in the 2021-22 period. The analysis indicated that ~90% of non-compliance cases came from misinterpretations of eligibility rather than instances of outright fraud, which occurred in fewer than 10% of cases.

Since then, HMRC has hired more staff, increased their scrutiny and introduced new measures to overhaul the R&D tax scheme.

New Levels of HMRC Scrutiny

Somewhat out of the blue, claimants and advisors alike began reporting higher numbers of compliance checks from HMRC in 2021. This was later revealed to be part of HMRC’s Mandatory Random Enquiry Programme (MREP).

A random sample of claims were reviewed for eligibility in the first MREP. In subsequent periods, HMRC carried out further random checks to determine non-compliance rates year-on-year. This gives HMRC better data on where issues are arising, rather than just investigating claims they already suspect.

HMRC has significantly increased the number of people working on R&D compliance (from ~100 to over 500) to more effectively detect and investigate non-compliance. A dedicated R&D Anti-Abuse Unit was also set up in July 2022.

The enhanced scrutiny delivered by HMRC affected claimants, but agents and advisors also received an overhaul of their role. An “Agent Educational Model” was introduced in 2023, working with agents identified as submitting risky claims to improve their practices.

Making Your Claim: Additional Hoops to Jump Through

Since August 2023, all claims must be accompanied by an Additional Information Form. This provides more detail about the R&D projects, the costs, and also agent involvement. The extra detail helps HMRC assess claims more effectively.

Many claimants already submitted the details required in the AIF prior to it being necessary. However, since it wasn’t mandatory previously, some would-be fraudsters and erroneous claimants submitted ineligible claims and HMRC had no way to tell without an enquiry. The AIF prevents this from happening.

The AIF also requires companies to disclose any support they receive in making their claim, as well as a named officer in their own company. This ensures there is accountable oversight within the company as well as enabling HMRC can track agent behaviour and hold them to higher standards.

Furthermore, claims can now only be submitted digitally. This helps standardise submissions, allow automated risk scoring, and reduces mis-filing or manual errors.

Finally, first-time claimants and those who haven’t made a claim in the last three years must now submit an Advance Notification Form within 6 months of the end of their accounting period. This lets HMRC know that they plan to make a claim and cuts down on the risk of spurious claims being made.

However, this final hoop is a relatively new obstacle, so its effects have not yet been properly felt. Many in the industry fear that this extra deadline for first-time claimants is easy to miss and prevents genuine claims from being made due to somewhat arbitrary administration.

Changes to the Value of the Claim

The Autumn Statement in 2022 reduced the additional deduction for the SME scheme from 130% to 86%. This has an effect on the value of R&D tax credit claims (as seen in the statistics) but also reduces the incentive to abuse it.

From April 2024, payments must go directly to the claimant company. Third party nominees can no longer receive R&D credit payments for their clients. This reduces the risk of “cowboy consultants” who make claims on behalf of companies and received the credit in their stead, potentially inflating or misrouting payments.

HMRC also introduced a cap to the amount that SMEs can claim, related to PAYE/NIC liability, preventing entities with low or no UK presence from channelling activity purely for relief.

Furthermore, the right to subcontracting activities was clarified, especially with the introduction of the Merged Scheme for accounting periods beginning on 1 April 2024. Where SMEs could previously claim for work they carried out for large company (since large companies could not claim for this cost), the rules have now changed. Large companies can now also claim for subcontractors, so it’s important to specify who gets to claim for that work.

What do the statistics say?

The data shows a significant reduction in claim volumes.

In 2022-23, there were 65,690 claims – a 21% decrease from the previous year. By 2023-24, the latest statistics, this figure had fallen to 46,950 – a further 26% decline. The decline is vastly concentrated in the SME scheme.

Despite this substantial drop in claim numbers, total relief has remained relatively consistent. It stood at £7.5 billion in 2022-23, rising marginally to £7.6 billion in 2023-24.

This apparent contradiction is explained by a shift in the composition of claims.

Claims under £15,000 have fallen disproportionately. Meanwhile, claims exceeding £250,000 have increased both in number and proportion. In 2023-24, 54% of all relief was attributed to claims worth £1 million or more, compared to 43% two years earlier.

First-time applicants have also been trending downward over several years.

Despite fewer claimants, the total relief claimed has been relatively stable or modestly upward. This can partially be explained by RDEC claims receiving a higher rate of relief in the 2023-24 period; this boost in the amount kept the totals stable, even as the number of SME claims dropped.

For a deeper assessment of the R&D tax credit statistics, check out our blog.

What does this mean for compliance measures?

It seems HMRC’s compliance measures have been working, with fewer SMEs claiming, especially on the lower end of the cost bands.

HMRC estimates the level of error and fraud for the 2023 to 2024 period has reduced to an overall level of 6.5% (£497 million), and to 11.7% (£370 million) for the SME scheme.

However, with the number of claims dropping, it’s unclear how many claimants have been deterred from making a claim due to the risk of a compliance check (and potential rejection) or even due to the additional effort to make a claim.

It seems that many smaller claims that might have been submitted were no longer worth pursuing in terms of time and resources, as the value of the claim has decreased and the effort to make the claim has increased.

Overall, it’s good news for the compliance measures; HMRC has reported a decrease in error and fraud, and the highest risk groups in value and sector have lower numbers of claims.

But it’s likely that many genuine claimants have been caught in the crossfire, dissuaded from claiming by HMRC’s new stringent requirements. With the Advance Notification Form, it’s important to keep an eye on first-time claimants going forward, to ensure that these companies aren’t left behind.

What should claimants do going forward?

For companies considering claims, the requirements are clear. R&D activities must be thoroughly documented, expenditure must be demonstrably eligible, and any advisors must be reputable and properly regulated.

For HMRC, the challenge lies in maintaining compliance standards without deterring legitimate claimants. The statistics over the coming years will indicate whether the appropriate balance has been achieved.

If you need support making your claim, get in touch with our team. We help companies make sense of the new regulations; a robust and compliant claim is our priority.