The founding father of Mojo, a males’s sexual well being and wellbeing app, has warned that HMRC’s aggressive crackdown on analysis and improvement (R&D) tax credit dangers punishing real innovators, as his firm battles a requirement to repay greater than £400,000.
Xander Gilbert, 35, stated he dreads the arrival of every new brown envelope from HMRC, after spending a 12 months locked in a dispute with the tax authority over an R&D credit score awarded early final 12 months. Gilbert and his cousin Angus Barge launched Mojo in 2019, having personally skilled the challenges round erectile dysfunction. Since then, the app has attracted greater than £5 million in enterprise capital funding from Kindred Capital and Octopus Ventures, and constructed a consumer base throughout 150 nations.
Mojo had pivoted to grow to be what it describes as an AI-powered intercourse and relationship therapist, a transfer the founders say is important in a rustic the place solely round 300 intercourse therapists can be found to fulfill the wants of tens of millions. “We’re helping people with their relationships, their sex lives — even helping people have babies,” Gilbert stated.
The corporate’s R&D tax credit score was meant to assist its know-how improvement efforts, however simply months after receiving the cost, HMRC wrote to say it believed the declare was invalid and demanded compensation. Gilbert described the correspondence as “completely dispiriting,” with repeated requests for data already supplied and rising fears that the method is stacked in opposition to claimants.
The dispute has left Mojo considering the pricey subsequent step of arbitration, whilst they proceed to provide additional proof by way of specialist consultancy FI Group. Gilbert stated the expertise left him feeling that HMRC was incentivised to claw again funds no matter advantage: “It feels like they’re trying to pick holes. They’re throwing absolutely everything at it to make that happen.”
One sticking level has been HMRC’s insistence on seeing timesheets to show employees had been engaged in R&D work. Gilbert stated Mojo didn’t hold formal timesheets, noting that HMRC’s personal steerage states {that a} greatest estimate is appropriate. “They keep asking for repeated proof we physically can’t provide, effectively contradicting their own instructions.”
Mojo is much from alone. HMRC’s more durable method follows revelations of widespread abuse of the R&D tax aid system, with fraudulent claims proliferating in earlier years. One investigation discovered claims linked to actions equivalent to creating recipes for blueberry croissants. The Workplace for Nationwide Statistics reported that whereas British companies claimed tax aid for £47.5 billion of R&D in 2019, solely £25.9 billion of precise private-sector R&D had been carried out.
Consequently, HMRC has acknowledged an “unacceptably high” stage of fraud and error throughout the scheme, notably amongst small companies, and is now subjecting extra claims to detailed scrutiny. An estimated 26 per cent of SME R&D aid expenditure was affected by error or fraud in 2021-22, costing taxpayers round £1.2 billion.
Nevertheless, entrepreneurs warn that real companies are being caught within the crossfire. Alicia Navarro, founding father of focus platform Flown, lately shared her frustrations on LinkedIn, recounting how HMRC questioned her eligibility regardless of her 27 years in technical undertaking administration and a computing science diploma.
Philip Hammond, the previous chancellor, has warned that heavy-handed enforcement dangers deterring reliable innovators from making claims — doubtlessly undermining the federal government’s broader progress ambitions.
An HMRC spokesperson defended its stance, saying: “R&D reliefs play a vital role in the Government’s mission to boost economic growth and we’re committed to ensuring the claims process is straightforward for genuine claimants. Given the significant levels of non-compliance in the regime, it’s essential we undertake activity to make sure taxpayers’ money is spent on supporting genuine R&D.”
For Gilbert and others, the battle continues — and with each new letter from HMRC, so too does the uncertainty hanging over their companies’ futures.
