HMRC has issued a warning to UK taxpayers and told them to come forward and “come clean”. HMRC has opened a new disclosure service for companies that may have overclaimed tax relief in past years, it has revealed.
The new service has been launched in response to concerns about the high level of error and fraud in R&D claims. Research and Development (R&D) tax relief is available for small and medium-sized enterprises (SMEs) with an accounting period that starts before 1 April 2024. If your accounting period begins on or after 1 April 2024, you can claim under the Research and Development merged scheme.
In 2023, HMRC published an analysis of R&D claims from 2020-21 which estimated that almost a quarter (24.4%) of claims by value in the SME scheme and 3.6% of claims in the larger company (RDEC) scheme were either incorrect or fraudulent – with a combined cost to the Exchequer of an estimated £1.13bn.
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The new R&D disclosure service is open to companies that have claimed too much R&D relief in error but are out of time to amend their company tax return. Dawn Register, a tax dispute resolution partner at BDO said: “HMRC’s own research shows a high level of historic fraud and error in R&D claims. While the rules for new R&D relief claims were significantly tightened recently – some might say overtightened making it difficult for genuinely innovative SMEs to access support for R&D – this new service is designed to encourage companies with historic inaccuracies to come forward.
“However, the restrictions on the use of the service and the lack of any incentives – such as protection from criminal prosecution or additional time to pay – may mean that this service is unlikely to prompt the level of response that HMRC is looking for. Launching this on New Year’s Eve won’t have helped awareness either.
“There are also other disclosure routes available to companies looking to bring their tax affairs up to date. In practice we have seen companies approached by many unscrupulous “claims” agents operating in the R&D market in recent years. If a company now realises that past R&D claims prepared for them by such agents were, shall we say, “speculative”, then a voluntary disclosure is certainly the way forward. However, they should always seek specialist advice from tax dispute specialists about putting things right, including the most appropriate route to use in approaching HMRC.”
Peter Clark, R&D Technical Director and Co-founder at RCK Partners, a tax consultancy that specialises in R&D tax relief, said: “HMRC is now taking a considerably more robust approach in launching investigations and this is partially why they are launching the new disclosure service.
“We strongly encourage claimants who are concerned they may have previously filed claims containing errors to seek advice. Doing this promptly will help them understand their position and if they need to make a disclosure, then doing so proactively can help their business avoid unnecessary penalties.
“It is also worth noting that this new facility should only be used if the company is out of time to amend its corporation tax return and if the business feels there are errors within its original R&D claim. It’s important for claimants to understand there are various disclosure routes and so expert advice is crucial.”