The Lords said that HMRC must take a more focused and targeted approach to identifying suspect claims, training investigators and reviewing current staffing resource to ensure it is able to undertake effective investigations.

In recent years there has been an escalation in the abuse of R&D tax relief which has resulted in loss to error and fraud amounting to £469m in a single year from 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 activity 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.

Lor