Taxpayers Lose Over £1bn due to R&D Tax Errors and Fraud

A lack of resources for monitoring compliance led to a record 341 tax reliefs costing taxpayers £204bn in 2023, with only 25 evaluated for cost-effectiveness in the last eight years. With a budget of just £600,000, the Treasury and HMRC face questions about the value for money offered by these reliefs.

R&D Tax Relief Concerns

Research and Development (R&D) SME relief alone resulted in over £1bn losses in 2020-21 due to errors and fraud, almost a quarter of the £4.76bn spent on this tax break.

The National Audit Office (NAO) calls for a significant improvement in assessing whether tax reliefs achieve their economic objectives, urging the Treasury and HMRC to build on existing improvements.

Jenny Tragner, director and head of policy at ForrestBrown, expresses serious concerns about HMRC’s compliance actions, emphasising the need for the right volume and quality of compliance resources for the R&D incentive.

The rising costs and compliance challenges between 2013-14 and 2021-22, where the cost of R&D relief surged by 575%, highlight the underestimated risk and compliance work needed for R&D SME relief.

The NAO stresses the importance of avoiding similar mistakes in other reliefs, urging a strategic approach to minimise errors, fraud, and inefficiencies.

Wider Tax Relief Landscape

Out of the £204bn in tax reliefs in 2022-23, £129bn was not targeted at economic growth. Pensions, capital gains tax relief on primary homes, and zero-rated VAT on food accounted for over 50% of the total tax relief payments.

The NAO calls for sufficient evaluation and compliance work to ensure legitimacy and effectiveness, urging prompt action to address issues.

Gareth Davies, head of the NAO, emphasises that while tax reliefs are crucial, their number and cost make administration challenging.

The government should conduct thorough evaluations and compliance work to understand the legitimacy and efficacy of claims, promptly addressing any identified problems. The NAO reveals that 39 out of the 341 reliefs have economic objectives, with 29 aimed at UK business investment, costing £16.6bn.

Conclusion

This highlights the need for a strategic approach to tax reliefs, ensuring they align with economic goals while minimising the risk of errors, fraud, and inefficiencies. The tax landscape should be shaped to optimise value for taxpayers and the economy.