Source · Select Committees · Public Accounts Committee
Recommendation 5
5
Accepted
Ensure rigorous review of previous years' R&D tax relief claims to tackle fraud and errors.
Conclusion
HMRC has been too slow to identify the scale of error and fraud in research and development tax reliefs and its approach to tackling offenders does not sufficiently target those committing serious fraud over those making honest mistakes. We have been highlighting the risk of error and fraud on these schemes for a number of HMRC performance in 2022–23 7 years. HMRC has improved its methodology and now has a more accurate picture of the level of abuse. Its estimate of error and fraud on the schemes in 2020–21 has more than trebled, from £336 million to £1.1 billion. On the scheme for small- and medium-sized enterprises, it has found one-quarter of the value of claims were non- compliant. However, HMRC’s approach to recovering this error and fraud is too passive and places too much reliance on companies correcting their own previous mistakes. We are not convinced that it is bearing down strongly enough on those companies, and the agents representing them, that have been consistently abusing the system. Recommendation 5: Now that it understands the true scale of error and fraud, HMRC should ensure it goes back over previous years. This should involve: • going back sufficiently far to tackle egregious fraud; and • telling those businesses who made honest mistakes to correct their returns or risk investigation.
Government Response Summary
The government agrees. HMRC states it can look back up to 20 years for deliberate non-compliance in R&D tax reliefs. Additionally, an R&D Disclosure Facility will go live on GOV.UK in spring 2024 to allow businesses to correct overclaimed or erroneous returns.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. claimed in accordance with the law. All claims go through a risk screening process; new requirements to submit claims electronically and provide additional information will enable HMRC to risk assess large volumes of claims in an automated way and target interventions on higher-risk claims. HMRC opens enquiries within legislative time limits. In the majority of cases, adjustments for incorrect R&D claims will be limited to claims investigated within the normal time limit of 12 months from the date the claim is submitted. However, HMRC does consider raising assessments outside of this normal time limit where relevant legislative conditions are met, including where there is evidence of deliberate non-compliance. Where there is evidence of deliberate non-compliance HMRC can look back up to 20 years to address this. HMRC has increased its resources addressing non-compliance in R&D. Currently over 500 people work on R&D compliance, compared with around 100 in 2020-21. HMRC has also created an Anti-Abuse Unit (AAU), undertaking compliance activity where there is suspected abuse of the relief. This sits alongside work done by HMRC’s Fraud Investigation Service, where HMRC suspects criminality. In spring 2024, the HMRC R&D Disclosure Facility will go live on GOV.UK, enabling customers or agents to inform HMRC if they may have overclaimed, or claimed in error and are out of time to amend their tax return. This will give customers the opportunity to come forward and put things right themselves rather than awaiting HMRC intervention.