HMRC error and fraud estimates (brief) | Research Credit Integrity Alliance

Key points

HMRC's early estimates of error and fraud in the R&D reliefs, based on risk based compliance reviews, were between 3.6 and 4.9 percent.12
Random enquiries changed the picture: HMRC's revised estimates were 16.7 percent for 2020 to 2021 and 17.6 percent for 2021 to 2022, with 25.8 percent in the SME scheme.23
HMRC's July 2026 annual report gives a final estimate of 6.4 percent for 2023 to 2024 and illustrative estimates of 5.3 percent for the next two years.4
HMRC and the National Audit Office link the fall mainly to digital claims and the additional information requirements introduced in 2023.45
HMRC's analysis distinguishes claims with and without a specialist R&D agent, but not by how the agent was paid.67

Why the estimates exist

HMRC reports spending on the R&D reliefs in its Resource Accounts because the schemes often result in cash payments.2 Overpayments caused by error or fraud are irregular, and the Comptroller and Auditor General has qualified his opinion on HMRC's accounts on this ground every year since 2019 to 2020, the first year HMRC produced an estimate.25 HMRC uses "error and fraud" to cover everything from mistakes and failure to take reasonable care to deliberate non-compliance.8

From assumptions to random enquiries

HMRC's first estimates combined results from claims selected for compliance checks with assumptions about the rest, including that unreviewed claims had less error.12 They gave 3.6 percent for 2019 to 2020 and 2020 to 2021, and 4.9 percent for 2021 to 2022.2

In 2023 HMRC began using a mandatory random enquiry programme, which examines a random sample of SME claims in full. Half of the 484 claims closed in the first programme contained some non-compliance, and 52 percent of the 387 closed in the second.23 The revised estimates were far higher than before. The National Audit Office said the earlier estimates had been limited by poor data on unreviewed cases, and described the SME rate as among the highest reported across all government spending programmes.23

Year	Earlier estimate	Latest estimate
2020 to 2021	3.6%	16.7% (final)
2021 to 2022	4.9%	17.6% (final)
2022 to 2023	13.3% (illustrative)	9.9% (final)
2023 to 2024	7.8% (illustrative)	6.4% (final)
2024 to 2025	5.9% (illustrative)	5.3% (illustrative)
2025 to 2026	None	5.3% (illustrative)

Overall error and fraud as a share of the estimated cost of the reliefs.12349

Reading the numbers with care

Several features of the method affect the trend.

Lag. Companies claim up to two years after spending, and enquiries take time to close, so each final estimate covers claims made years earlier.2
Projections. Illustrative estimates build in assumed effects of new measures, such as a £444 million reduction assumed for 2023 to 2024, until random enquiries for that year are complete.3
Revisions to the base. HMRC revises the cost of the reliefs over five years; the cost for 2023 to 2024 fell from £9.44 billion to £6.94 billion.4
Significance. HMRC says the SME rate for 2023 to 2024 is not statistically different from 2022 to 2023, and that the 2022 to 2023 SME rate was not statistically different from 2021 to 2022.49

What the random enquiries found

In the first programme, 25 percent of claims involved no qualifying R&D at all, and 19 percent overclaimed on genuine R&D. Fraud indicators appeared in fewer than 10 percent of claims, so HMRC concluded that most non-compliance is due to other behaviours.6 Small claims and first claims were least compliant: 78 percent of the value of claims below £10,000 was non-compliant, and 38 percent of the value of first time claims.6

About half of the sampled companies used a specialist R&D agent. Non-compliance by value was 25 percent with such an agent and 24 percent without in the first programme, and 28 percent against 21 percent in the second, which HMRC described as "slightly higher".67 A separate HMRC analysis of the 500 claims in the first programme found that, measured by the cost of relief, 20 percent was non-compliant where the agent belonged to a professional body and 53 percent where it did not. Measured by number of claims, the rates were similar: 49 percent and 53 percent of cases had some non-compliance. HMRC cautioned that claim size and small samples affect the comparison.10

The policy response

After recommendations from the Committee of Public Accounts, HMRC and the government introduced a PAYE linked cap, an R&D Anti Abuse Unit, lower SME rates from April 2023, advance notification, a mandatory additional information form naming the company officer and any advisers, payment of credits to the company rather than to nominees, and a merged scheme from April 2024.237 R&D compliance staff rose from around 100 to more than 500.7 HMRC also opened an online disclosure service for companies that claimed too much and can no longer amend their return.11

The National Audit Office reported in July 2026 that HMRC "is beginning to see the impact" of these changes, that no further changes are planned, and that HMRC is reviewing whether the measures have gone far enough.5

What the record shows

Random enquiries showed that HMRC's early method had understated error and fraud in the reliefs, and the latest final estimate shows a much lower rate after the 2023 changes.24 Some year on year movements are within statistical uncertainty, and the most recent figures are projections.4 The published analysis identifies whether a claim used a specialist agent and whether the agent belonged to a professional body. It does not record how agents were paid, so no UK estimate relates claim quality to fee arrangements.6710

References

HM Revenue and Customs, Annual Report and Accounts 2021 to 2022 (print version, July 2022), page 116 and Resource Accounts note 5.1.5 (pages 241 to 242). https://assets.publishing.service.gov.uk/media/639c4a30d3bf7f7f8cebfe8f/HMRC_Annual_Report_and_Accounts_2021_to_2022_Print.pdf (accessed 11 October 2026). Back
National Audit Office, Report by the Comptroller and Auditor General: HM Revenue & Customs 2022-23 Accounts, Summary paragraphs 9 to 11, and Part Two, paragraphs 2.3 to 2.18 and Figure 11. https://assets.publishing.service.gov.uk/media/64da2f04c8dee4000d7f1c01/Report_by_the_Comptroller_and_Auditor_General.pdf (accessed 11 October 2026). Back
National Audit Office, Report by the Comptroller and Auditor General: HM Revenue & Customs 2023-24 Accounts, Summary paragraphs 10 and 11, and Part Two, paragraphs 2.6 to 2.19 and Figure 7. https://assets.publishing.service.gov.uk/media/6889f286048fff613a4d5b72/Report_by_the_Comptroller_and_Auditor_General.pdf (accessed 11 October 2026). Back
HM Revenue and Customs, Annual Report and Accounts 2025 to 2026 (July 2026), page 107 and Resource Accounts note 3.1.4 (pages 251 to 253). https://assets.publishing.service.gov.uk/media/6a4f66c406e7256c331df8a2/HMRC_annual_report_and_accounts_2025_to_2026.pdf (accessed 11 October 2026). Back
National Audit Office, Report by the Comptroller and Auditor General on HM Revenue and Customs 2025-26 Accounts, published within HMRC's Annual Report and Accounts 2025 to 2026, Summary paragraph 11 and paragraphs 2.9 and 2.15. https://assets.publishing.service.gov.uk/media/6a4f66c406e7256c331df8a2/HMRC_annual_report_and_accounts_2025_to_2026.pdf (accessed 11 October 2026). Back
HM Revenue and Customs, HMRC's approach to Research and Development tax reliefs (published 17 July 2023), section 3.2, Themes 1, 2, 4 and 5. https://www.gov.uk/government/publications/compliance-approach-to-research-and-development-tax-reliefs/hmrcs-approach-to-research-and-development-tax-reliefs (accessed 11 October 2026). Back
HM Revenue and Customs, Approach to Research and Development tax reliefs 2023 to 2024 (published 30 October 2024), sections 2.1, 2.4 and Annex B, Theme 5. https://www.gov.uk/government/publications/hmrcs-approach-to-research-and-development-tax-reliefs-2023-to-2024/approach-to-research-and-development-tax-reliefs-2023-to-2024 (accessed 11 October 2026). Back
HM Revenue and Customs, Annual Report and Accounts 2022 to 2023 (July 2023), "Research and development tax reliefs" (page 23). https://assets.publishing.service.gov.uk/media/64e34f1c3309b700121c9baa/HMRC_annual_report_and_accounts_2022_to_2023.pdf (accessed 11 October 2026). Back
HM Revenue and Customs, Annual Report and Accounts 2024 to 2025 (July 2025), Resource Accounts note 4.1.5 (pages 252 to 254). https://assets.publishing.service.gov.uk/media/687e5d318adf4250705c96d8/HMRC_annual_report_and_accounts_2024_to_2025.pdf (accessed 11 October 2026). Back
HM Revenue and Customs, Raising standards in the tax advice market: strengthening the regulatory framework and improving registration (consultation, 6 March 2024), Annex C, section "Research and development tax credit". https://www.gov.uk/government/consultations/raising-standards-in-the-tax-advice-market-strengthening-the-regulatory-framework-and-improving-registration/raising-standards-in-the-tax-advice-market-strengthening-the-regulatory-framework-and-improving-registration (accessed 11 October 2026). Back
HM Revenue and Customs, Tell HMRC if you've claimed too much Research and Development (R&D) tax relief (last updated 14 August 2026), section "Who can use the R&D disclosure service". https://www.gov.uk/guidance/tell-hmrc-if-youve-claimed-too-much-research-and-development-rd-tax-relief (accessed 11 October 2026). Back