Source · Select Committees · Public Accounts Committee
Recommendation 14
14
We asked HMRC how much of the increase in the cost of R&D tax reliefs...
Conclusion
We asked HMRC how much of the increase in the cost of R&D tax reliefs was down to abuse. HMRC said monitoring was difficult because over time R&D tax reliefs had become increasingly generous and thus an increase in claims would be expected. It also said that claims have consistently exceeded forecasts, and it had therefore tried to understand the reasons why. We asked HMRC about the nature of fraud it had identified and whether there were trends in particular types. In response, HMRC focused on the role of advisers who, it said, approach businesses and suggest, incorrectly, that some expenditure can be recharacterised as R&D to get tax relief. HMRC explained that when it challenges a claim, it can find the adviser has gone and the business does not know a great deal about the rationale for the claim. HMRC confirmed that it had a watchlist of advisers that it was worried about. It said the list would be of great benefit to it when claimants are required to disclose who helped them with their claim.26
Government Response
Not Addressed
HM Government
Not Addressed
2.4 The government agrees with the Committee’s recommendation. 9 Target implementation date: Winter 2023 2.5 Activities are currently underway to address key error & fraud issues, including designing and implementing: • the package of R&D reform measures announced at Autumn Budget 2021 aimed at tackling abuse and improving compliance (by April 2023), including: • introducing a cross-cutting team of c50 FTE focused on abuse in partnership with HMRC’s Fraud Investigation Service • requiring all claims to be made digitally, with more detail, endorsed by a named senior officer • a programme of customer education to improve our upstream compliance programme • enhancements to HMRC’s risk profiling. 2.6 The Mandatory Random Enquiry Programme (MREP) results will be used to further inform the activities undertaken to address key error and fraud issues. This will subsequently enable HMRC to demonstrate that it is achieving a cost-effective error and fraud control environment. This control environment is defined within the NAO Error and Fraud Good Practice Guide as the environment that leads to the lowest level of error and fraud compatible with the policy intent. 2022-23 will be the first year a MREP-based estimate will be reported within HMRC’s Annual Report and Accounts.