The Chartered Institute of Taxation (CIOT) has warned that HMRC's approach to tackling research and development (R&D) fraud deters legitimate claims.

While CIOT acknowledged that abuse of R&D relief is a "substantial problem", the professional body shared concerns that HMRC's ‘volume compliance' approach does not work for R&D claims due to the complicated nature of the relief.

Under volume compliance, there is no direct engagement between the claimant and HMRC's compliance team. According to CIOT, this means that SMEs and their agents are given "little or no opportunity" to defend their claims.

As a result, HMRC is rejecting legitimate claims, with other genuine claimants forced to give up on their claims due to an overly bureaucratic system, CIOT said.

According to Ellen Milner, director of public policy at CIOT, this "inflexible, confrontational" approach has led to a breakdown of trust between HMRC and taxpayers, and a "lack of faith" in the R&D tax relief for SMEs. She continued:

"Too many genuine claimants are embroiled in a rigid and uncompromising compliance process in order to defend their R&D tax relief claim, and are reconsidering using the scheme altogether as the costs of enquiry outweigh the benefits of claiming the relief."

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