Recommendation 28

Research and development tax relief for small- and medium-sized enterprise is designed to support companies that work on innovative projects in science and technology.57 The cost of the research and development relief for small- and medium-sized enterprises increased from £0.8 billion in 2014–15 to £2.2 billion in 2017–18. This increase was faster than any published forecasts suggested. The NAO found that the higher costs of the research and development relief for small- and medium-sized enterprises was in part due to abuse and poor-quality claims. The relief has suffered from abuse by companies with a minimal UK presence. This abuse started after a control was lifted in 2012 which had sought to ensure that companies claiming payments through the research and development scheme had not been arranged solely for this purpose. HMRC identified that companies were exploiting the removal of the control in early 2018, and the government is now planning 50 Committee of Public Accounts, Tax reliefs, Third Report of Session 2014–15 Report, together with formal minutes related to the report, HC 282, June 2014 51 Committee of Public Accounts, The effective management of tax reliefs, Forty-ninth Report of Session 2014–15, HC 892, March 2015 52 IFF Research, Capital Gains Tax Relief – Research on Entrepreneurs’ Relief and Business Asset Rollover Relief, February 2015 53 IFF Research, Capital Gains Tax Entrepreneurs’ Relief: Behaviours and Motivations – HMRC Research Report 456, May 2017 54 Budget Speech 2020, available at https://www.gov.uk/government/speeches/budget-speech-2020 55 C&AG’s report, Figure 12 56 Q 63 57 HMRC, Claiming Research and Development tax reliefs, March 2020 Management of tax reliefs 17 a further change in legislation to address this. It has proposed introducing a new control capping the payments a company can receive in a year. The cap will be linked to the amount a company pays in PAYE and National Insurance Contributions.58