Recommendation 30

The main cause of lost tax on the research and development scheme for small- and medium-sized enterprises is from poor quality claims, which has been an issue since the scheme was introduced. We raised the issue with HMRC of the higher than expected number of claims for the relief and the role of agents in making these claims. HMRC said it was a relief that it had to police quite carefully. It explained it faced two issues. First, some businesses tested the boundary of the relief by arguing that their expenditure was within the scope of the relief. Second, agents produced some claims, but these were not to the standard that HMRC would have liked. HMRC told us that it had confidence in how it administered the relief, and that it placed a great deal of resource and attention into making sure that claims were right.62 HMRC set out the actions it had taken which included: • allocating funding in 2020–21 for an additional 100 staff to be deployed predominantly on compliance activities, such as investigative work and risking claims; • reorganising teams processing claims so that they were better able to manage peaks of work; • from April 2019, requiring companies to provide more information to support claims; and • working with agents and tax advisers to improve the standard of claims.63 58 C&AG’s report, paras 2.20–2.27 ad Figure 12; and HM Treasury, Open consultation – Preventing abuse of the R&D tax relief for SMEs: second consultation, March 2020 59 C&AG’s report, para 2.27; HM Treasury, Budget 2020 – Delivering on our promises to the British people 60 Q 44 61 Letter from Jim Harra, Chief Executive and First Permanent Secretary, HMRC, 26th June 2020 62 Q 34, C&AG’s report, para 2.27 63 Letter from Jim Harra, Chief Executive and First Permanent Secretary, HMRC, 26th June 2020 18 Management of tax reliefs