Companies across construction are dreading demands from HMRC as the authorities look to claw back millions in Research and Development tax breaks.

Credits under the scheme give companies tax relief when they invest in innovation.

But HMRC believe the system has been abused by firms and R&D tax credit advisers who take a cut of any rebates claimed.

One contractor said: “A load of construction firms are sweating on this at the moment.

“Advisers were popping up all over the place encouraging firms to claims credit for research and innovation.

“Most of the time you only had to say you were doing something slightly differently and that counted as an innovation on the forms.

“Not only might firms now have to hand back a lot of money but the advisers have often disappeared with their cut and you’ll be wearing that as well.”

Latest figures from HMRC estimate that fraud and errors in the system were worth more than £4bn from 2020-24 while last year £7.7bn of tax relief was handed out across all industries.

HMRC also estimates that only 38% of claims by small and medium sized construction companies are wholly compliant with the legislation.

It said: “Reducing the level of non-compliance in R&D tax relief schemes is a priority for HMRC.”

One construction director added: “Firms know that a knock on the door over this is going to come at some point and it’s going to hit their cash flow which is the last thing you need in the current market.”