HMRC needs to improve compliance capability to crack down on abuse of the research and development (R&D) tax credit system, reports the House of Lords Economic Affairs Committee
The Committee reported that HMRC must take a more focused and targeted approach to identifying suspect claims, as well as training investigators and reviewing current staffing resources to make sure that it is able to undertake effective investigations.
In recent years there has been a substantial rise in the abuse of R&D tax relief which has resulted in losses of £469m in fraudulent R&D claims in 2021-22, accounting for 4.5% of the total cost, which totalled £6.9bn. The majority of the fraud related to the SME schemes while 90% of claims were made through agents, who on average charged 16% of the relief.
The Committee heard criticism of HMRC’s investigations with complaints about inspectors ‘using a formulaic checklist of questions, many of which are irrelevant to the claim under inquiry’. There was also inconsistency in terms of the inspection process and a reluctance to engage constructively with taxpayers and their agents.