Lords Committee publishes report on R&D tax relief reforms

Tuesday 31st January, 2023

The House of Lords Economic Affairs Finance Bill Sub-Committee has published its report on the Government’s draft Finance Bill 2022-23. The Bill was published on 20th July 2022 and the report covers its Research and Development (R&D) tax relief reforms.

The Sub-Committee heard evidence that in recent years there has been an escalation in the abuse of R&D tax relief which has led to a loss of revenue. The relief was subject to large-scale organised criminal attacks and the activities of rogue advisers which involve targeting small companies, often persuading them to make invalid claims. In its most recent accounts His Majesty’s Revenue and Customs (HMRC) estimated the amount of error and fraud in its two R&D schemes at £469 million.

The Bill proposes legislative changes to combat this abuse, including the requirement to provide HMRC with more detailed information about the nature of a claim, naming any tax adviser involved in preparing claims and requiring that claims should be endorsed by a senior officer of the company. It also introduces a requirement to give pre-notification of an intention to make a claim.

The Sub-Committee concluded that these changes would not be effective in isolation and that improvements to HMRC’s compliance capability are also required. This includes a more focused and targeted approach to identifying suspect claims, greater expertise and potentially more resource.

Lord Leigh of Hurley, Chair of the Economic Affairs Finance Bill Sub-Committee, said:

“R&D investment, which tax relief supports, makes an important contribution to the UK’s economy and productivity. But fraud and error are costing the taxpayer over £450million each year.

“HMRC’s plans for tackling this problem will not succeed if it doesn’t also improve its compliance capability.

“The Government should use its review of R&D tax relief as an opportunity to look beyond the initial measures within the draft Bill and hold an open-ended consultation on how the scheme can be improved. This will be integral to future proofing the UK’s competitiveness as a hub of R&D activity.”