Recommendation 5

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.