Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what recent assessment her Department has made of the effectiveness of safeguards in the Research and Development (R&D) tax relief scheme to prevent misuse by third-party claims agents; and whether she is taking steps to ensure that R&D tax incentives are (a) directed towards genuine innovation and (b) not subject to potential abuse.

HMRC has implemented a number of policy and operational changes to the R&D reliefs in recent years to improve overall levels of compliance. This includes mandating digital claims and requiring additional information, which has transformed the ability to risk assess claims, as well as identify and address patterns of non-compliance.

The use of nominations and assignments for R&D tax credit payments have also been restricted, reducing the incentive for agents to submit spurious claims, providing customers with greater visibility over claims made on their behalf and ensuring claimants receive payments directly.

HMRC also investigate and take action against agents who encourage ineligible R&D claims, including issuing penalties, suspending their ability to make claims on behalf of clients and refusing to deal with an agent. This includes criminal action which can lead to arrests being made for R&D tax fraud, as was seen in September 2024.

The latest error and fraud estimates, published in HMRC's Annual Report and Accounts 2024 to 2025, show that the policy and operational changes are proving effective in driving down non-compliance. The estimates show a drop in the error and fraud rates to 9.9% (£759 million) for 2022 to 2023 compared to 17.6% (£1.34 billion) for 2021 to 2022. Illustrative estimates for 2023 to 2024 and 2024 to 2025 show error and fraud is expected to have fallen further to 6.5% (£497 million) and then to 5.9% (£481 million).

HMRC remains committed to tackling error and fraud, whilst also ensuring the claims process is straightforward for genuine claimants and supports the UK’s most innovative businesses.

HMRC has consulted on widening the use of advance clearances for R&D tax relief claims and has recently recruited an R&D Expert Advisory Panel. The Panel will work with HMRC to increase clarity of guidance for claimants and enhance HMRC’s understanding of innovation and developments across key growth sectors.