My late grandfather had a blunderbuss in his cellar, but until now I had never seen one used.
The standard wording of a new ‘one to many’ letter from HMRC Fraud Investigation Service (FIS) Department 198, Proceeds of Crime to claimants for R&D relief credits reads:
‘We are contacting you with reference to a recent claim made for relief ... We continuously monitor systems and customer records to guard against fraudulent activity. The claim triggered an alert on our systems and has caused HMRC to believe that you have fraudulently claimed money to which you are not entitled.
‘If you think you are entitled to this money, then you need to contact HMRC as a matter of urgency, so that we can re-examine your claim. If we do not hear from you, we will cancel the repayment claim.’
Although it makes an overt accusation of fraud, the letter neither notifies the recipient that they are under investigation under any sort of civil investigation protocol, nor that they are under criminal investigation.
Indeed, the letter states: ‘At this time HMRC has not opened a criminal investigation into this suspected fraud. However, you should be aware that HMRC reserves the right to open a criminal investigation ... any investigation could use as evidence anything you have said to HMRC about your claim ... should you decide to contact HMRC.’
In effect, HMRC appears in these interventions to be offering claimants a binary choice: walk away with the claim rejected and hope you hear nothing more, or provide further information to try to better substantiate the claim and risk criminal investigation. Not so much a nudge letter as a hard shove letter.
True to form, early indications are that many of these ‘one to many’ letters have been sent – due to the vagaries of HMRC’s algorithms – to taxpayers who were acting in good faith and are now understandably scared and now rushing to seek professional advice about what to do when accused by HMRC in such a woolly way of criminal behaviour. Should they just abandon a claim they believe to be valid? Or should they face the intimidating prospect of engaging with an FIS that seems to have made up its mind already?
Several factors are at play in leading to this new heavy-handed approach:
the government’s policy objective to incentivise a surge in R&D spending to 2.4% of GDP by 2027 – the success of which has precipitated a surge in claims for R&D credits to over 100,000 a year;
false and speculative claims have surged too – much of the problem fuelled by bad actors in the advisory market;
a huge backlog has built up in processing claims – which should ordinarily be processed within 28 days – as HMRC has struggled to cope both with the volume of legitimate claims and the additional checks rushed in to stamp out the estimated 5% of claims it believes are unwarranted;
the escalating fraud and the backlogs have caused HMRC and its political masters considerable public embarrassment; and
severe resource constraints within HMRC mean that it simply does not have the resources to investigate all cases of suspected fraud – or even, seemingly, most of them.
The new nudge/shove to walk away approach is sub-optimal. It risks severely undermining the government’s incentivisation of investing in legitimate R&D, while failing to properly investigate and punish much of the deliberate wrongdoing that has occurred.
A third way between simply rejecting claims and opening criminal investigations would be to civilly investigate with a view to levying tax-geared penalties on the potential lost revenue, were fraudulent claims to have been allowed. HMRC’s apparent decision to resort to fear tactics while writing-off a big penalty haul is surely yet another cost to the Treasury of failing to resource it properly to go about its work in a more measured, appropriate and comprehensive way.
Home >Articles > HMRC ‘sends in the heavies’ to clear R&D backlog
HMRC ‘sends in the heavies’ to clear R&D backlog
My late grandfather had a blunderbuss in his cellar, but until now I had never seen one used.
The standard wording of a new ‘one to many’ letter from HMRC Fraud Investigation Service (FIS) Department 198, Proceeds of Crime to claimants for R&D relief credits reads:
‘We are contacting you with reference to a recent claim made for relief ... We continuously monitor systems and customer records to guard against fraudulent activity. The claim triggered an alert on our systems and has caused HMRC to believe that you have fraudulently claimed money to which you are not entitled.
‘If you think you are entitled to this money, then you need to contact HMRC as a matter of urgency, so that we can re-examine your claim. If we do not hear from you, we will cancel the repayment claim.’
Although it makes an overt accusation of fraud, the letter neither notifies the recipient that they are under investigation under any sort of civil investigation protocol, nor that they are under criminal investigation.
Indeed, the letter states: ‘At this time HMRC has not opened a criminal investigation into this suspected fraud. However, you should be aware that HMRC reserves the right to open a criminal investigation ... any investigation could use as evidence anything you have said to HMRC about your claim ... should you decide to contact HMRC.’
In effect, HMRC appears in these interventions to be offering claimants a binary choice: walk away with the claim rejected and hope you hear nothing more, or provide further information to try to better substantiate the claim and risk criminal investigation. Not so much a nudge letter as a hard shove letter.
True to form, early indications are that many of these ‘one to many’ letters have been sent – due to the vagaries of HMRC’s algorithms – to taxpayers who were acting in good faith and are now understandably scared and now rushing to seek professional advice about what to do when accused by HMRC in such a woolly way of criminal behaviour. Should they just abandon a claim they believe to be valid? Or should they face the intimidating prospect of engaging with an FIS that seems to have made up its mind already?
Several factors are at play in leading to this new heavy-handed approach:
the government’s policy objective to incentivise a surge in R&D spending to 2.4% of GDP by 2027 – the success of which has precipitated a surge in claims for R&D credits to over 100,000 a year;
false and speculative claims have surged too – much of the problem fuelled by bad actors in the advisory market;
a huge backlog has built up in processing claims – which should ordinarily be processed within 28 days – as HMRC has struggled to cope both with the volume of legitimate claims and the additional checks rushed in to stamp out the estimated 5% of claims it believes are unwarranted;
the escalating fraud and the backlogs have caused HMRC and its political masters considerable public embarrassment; and
severe resource constraints within HMRC mean that it simply does not have the resources to investigate all cases of suspected fraud – or even, seemingly, most of them.
The new nudge/shove to walk away approach is sub-optimal. It risks severely undermining the government’s incentivisation of investing in legitimate R&D, while failing to properly investigate and punish much of the deliberate wrongdoing that has occurred.
A third way between simply rejecting claims and opening criminal investigations would be to civilly investigate with a view to levying tax-geared penalties on the potential lost revenue, were fraudulent claims to have been allowed. HMRC’s apparent decision to resort to fear tactics while writing-off a big penalty haul is surely yet another cost to the Treasury of failing to resource it properly to go about its work in a more measured, appropriate and comprehensive way.
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