Men’s sexual health app faces £400k HMRC clawback as R&D tax crackdown bites

The founder of Mojo, a men’s sexual health and wellbeing app, has warned that HMRC’s aggressive crackdown on research and development (R&D) tax credits risks punishing genuine innovators, as his company battles a demand to repay more than £400,000.

Xander Gilbert, 35, said he dreads the arrival of each new brown envelope from HMRC, after spending a year locked in a dispute with the tax authority over an R&D credit awarded early last year. Gilbert and his cousin Angus Barge launched Mojo in 2019, having personally experienced the challenges around erectile dysfunction. Since then, the app has attracted more than £5 million in venture capital funding from Kindred Capital and Octopus Ventures, and built a user base across 150 countries.

Mojo had pivoted to become what it describes as an AI-powered sex and relationship therapist, a move the founders say is essential in a country where only around 300 sex therapists are available to meet the needs of millions. “We’re helping people with their relationships, their sex lives — even helping people have babies,” Gilbert said.

The company’s R&D tax credit was meant to support its technology development efforts, but just months after receiving the payment, HMRC wrote to say it believed the claim was invalid and demanded repayment. Gilbert described the correspondence as “completely dispiriting,” with repeated requests for information already provided and growing fears that the process is stacked against claimants.

The dispute has left Mojo contemplating the costly next step of arbitration, even as they continue to supply further evidence through specialist consultancy FI Group. Gilbert said the experience left him feeling that HMRC was incentivised to claw back payments regardless of merit: “It feels like they’re trying to pick holes. They’re throwing absolutely everything at it to make that happen.”

One sticking point has been HMRC’s insistence on seeing timesheets to prove staff were engaged in R&D work. Gilbert said Mojo did not keep formal timesheets, noting that HMRC’s own guidance states that a best estimate is acceptable. “They keep asking for repeated proof we physically can’t provide, effectively contradicting their own instructions.”

Mojo is far from alone. HMRC’s tougher approach follows revelations of widespread abuse of the R&D tax relief system, with fraudulent claims proliferating in previous years. One investigation found claims linked to activities such as creating recipes for blueberry croissants. The Office for National Statistics reported that while British businesses claimed tax relief for £47.5 billion of R&D in 2019, only £25.9 billion of actual private-sector R&D had been carried out.

As a result, HMRC has acknowledged an “unacceptably high” level of fraud and error within the scheme, particularly among small businesses, and is now subjecting more claims to detailed scrutiny. An estimated 26 per cent of SME R&D relief expenditure was affected by error or fraud in 2021-22, costing taxpayers around £1.2 billion.

However, entrepreneurs warn that genuine businesses are being caught in the crossfire. Alicia Navarro, founder of focus platform Flown, recently shared her frustrations on LinkedIn, recounting how HMRC questioned her eligibility despite her 27 years in technical project management and a computing science degree.

Philip Hammond, the former chancellor, has warned that heavy-handed enforcement risks deterring legitimate innovators from making claims — potentially undermining the government’s broader growth 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 every new letter from HMRC, so too does the uncertainty hanging over their businesses’ futures.