‘HMRC gave me £49,000 relief, but wants it back’

HMRC is reassessing past research and development (Ramp;D) tax relief claims, after underestimating the level of error and fraud over many years. One start-up told the BBC it is being asked to return £49,000. Business groups say the process is being “mishandled and is crippling small firms. Optometrist and entrepreneur Mr Patel received the money in 2022 for work during 2020-21 on a potential new lighting product.

In January 2023 he got a notice of enquiry, informing him that a compliance check on his claim found similar products already in existence. Mr Patel says that the product he was working on was innovative at the time. Many small businesses have been in touch about this issue, according to the Federation of Small Businesses. The tax authority needs to recognise the importance of a predictable and supportive tax environment for those businesses at the cutting edge of technological change, says Tina McKenzie, policy chair for the FSB.

Ramp;D tax credits were introduced in 2000 and are designed to help start-up companies, by giving them tax relief when they invest in innovation. These retrospective challenges on Ramp;“D tax relief are widespread in the start-ups community and crippling,”” he says. HMRC has estimated that more than £1bn was lost to error and fraud in tax relief to smaller businesses at the height of the pandemic in 2020-21. National Audit Office spending watchdog recommended in January that HMRC work on older claims.

Chancellor Jeremy Hunt committed to improve the functioning of the Ramp;D tax relief system. HMRC told the BBC that it could not comment on individual cases. It said it was determined to ensure that the claims process is straightforward for genuine claimants. If some companies abuse the scheme to cut their tax bill, this takes money out of the public purse, which could otherwise be spent on hospitals and schools.

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