Treasury minister defends HMRC's efforts in delivering tax incentive schemes
During a House of Lords oral question session, concern was raised about delays in accessing tax incentive schemes. In response, a Treasury minister defended HMRC’s approach and offered to talk to HMRC about setting up a working group to look at improving EIS administration.
Lord Leigh of Hurley (Con), Chair of the Finance Bill Sub-Committee of the Economic Affairs Committee, expressed concerns about the pressure experienced by start-up companies resulting from delays in accessing tax incentive schemes including research and development (R&D) tax credits and the Enterprise Investment Scheme (EIS).
Baroness Vere of Norbiton, the Treasury minister in the Lords, said that the standard claim process duration is currently 40 working days; however, occasionally further checks are required to ensure that relief is “claimed only by those who are eligible”.
Lord Leigh, a Chartered Tax Adviser, recognised that checks need to be done in certain areas. However, he suggested that while there are ‘extensive’ reports of R&D fraud, there is no history of fraud in relation to EIS. Nevertheless, he saw “evidence of heavy-handedness by HMRC in restricting [EIS] claims”. The Conservative peer urged the minister to consider setting up a working party including EIS fund managers to look at reducing costs and unnecessary delay in granting EIS relief.
Baroness Vere said that HMRC regularly engages with industry to improve its guidance and promised to share the working group idea with HMRC.
Lord Fox (Lib Dem) suggested that the minister’s response does not match with “the experience on the ground”. He said that the issue is not just about payment, it is about “retrospective payments” that put businesses at risk when their cash flow dries up.
Lord Sikka (Lab) accused the government of failing to monitor the benefits of tax reliefs and referenced the National Audit Office report that indicated error and fraud in SME R&D tax credits had increased to 24.4%.
The minister acknowledged the rise and argued that, as a result, HMRC has taken action and has boosted the number of staff working in the fraud department to 500. Additionally, in response to evidence that much of the fraud or error was happening using nominated bank accounts, HMRC has closed the ability for companies to use nominated bank accounts.
Lord Londesborough (Cross Bench) asked the government to conduct an impact assessment on the EIS and Seed Enterprise Investment schemes because “start-ups have a failure rate of around 90% and we should be clear about the costs/benefits when some £30 billion—so far—of taxpayers’ money has been involved”.
Baroness Vere emphasised that an independent review of both schemes' design has recently been published, with a focus on getting the best value for taxpayer money.
Lord Livermore (Lab) expressed concerns over HMRC services and stressed the importance of tax incentives for young companies. He asked: “Does the minister believe the problems at HMRC are now hindering economic activity”.
The minister defended HMRC and argued that the department is “working to its aims”. She continued that companies can contact HMRC’s corporation tax helpline or get in touch with the department for advance assurance before making an application.
You can read the full debate here.