Recommendation 4

HMRC cannot explain why the cost of some tax reliefs is considerably greater than government forecasts presented to Parliament. Government forecasts of the cost of tax reliefs are prepared by HMRC and scrutinised by the Office for Budget Responsibility (OBR). The costs of some new tax reliefs are double the government’s published forecasts. For example, the research and development scheme introduced in 2013 for large companies now costs over £2 billion a year, twice what HMRC expected when it was introduced. In July 2019 the OBR concluded that the cost of tax reliefs was poorly understood. HMRC does not compare the costs of reliefs to forecasts and is therefore not well-placed to investigate the reasons for cost variances or report differences to Parliament. HMRC has committed to publicly reporting variances between the forecast and actual cost of tax reliefs. Recommendation: HMRC should, as part of its next annual statistical publication on tax reliefs due in October 2020, identify all significant cost variances within tax reliefs, and report the reasons for those variances, explaining whether variations in cost are proportionate to the impact of the relief.