HMRC estimates error and fraud accounts for over £1bn of R&D claims

New data from HMRC shows that £1.13bn in research and development (R&D) tax relief was handed out due to error and fraud in 2020-21. This represents 16.7% of all the R&D tax relief paid out and is considerably higher than HMRC’s previous estimate of 3.6% (£336m).

The department estimates that most of this error and fraud falls under ‘non-compliance’ including mistakes and failure to take reasonable care. Most of this non-compliance is in the small and medium-sized enterprises scheme where error and fraud for 2020-21 is estimated as 24.4%.

HMRC has also risk-profiled claims across the different business sectors and by size of claim. It estimates that only 11% of R&D claims made by businesses in the education sector were compliant whereas 69% of claims made by manufacturing sector businesses were compliant. Broadly small value R&D claims are seen as less likely to be...