Recommendation 29

The cap was due to be introduced in April 2020, which would have given companies until 2022–23 to make claims under existing rules. HMRC estimated that the proposed changes would have saved the Exchequer around £45 million a year. However, at the 2020 Budget the government announced that it would change the design of its proposed cap to minimise the impact on legitimate business. It also announced that introduction of the cap would be delayed to April 2021.59 We asked HMRC how much tax will have been lost to abuse before the new arrangements kick in.60 HMRC estimated that the amount of money claimed through the relief which would have been excluded by the latest proposed cap was £70 million in 2016–17 and £130 million (forecast) in 2020–21. It explained that the estimate covered both claims that HMRC could challenge as abusive, and other claims where the exchequer was subsidising companies not doing research and development in the UK and which the cap would restrict. It also explained that its estimate did not represent the impact on the exchequer as it did not take account of how companies’ behaviour would have changed in response to the cap. HMRC did not provide a separate estimate of the amount of tax lost.61