Continuing its crackdown on R&D tax credit fraud and error, HMRC has introduced a new disclosure service for companies that have overclaimed R&D tax relief. Here, we explore the service in more detail, and how it may help some companies to mitigate penalties and interest.
What is the HMRC R&D Disclosure Service?
Launched on 31 December 2024, the R&D Disclosure Service makes it easy for companies, or their agents, to tell HMRC about inaccuracies in R&D claims.
In doing so, companies could potentially avoid extra interest and penalties due to the voluntary nature of this disclosure facility.
Companies should use the service if they have claimed too much R&D tax relief, have missed the period in which it would have been possible to amend their tax return, and the errors have been made either despite taking reasonable care, or because the company was careless.
This facility cannot be used, however, if the tax return is still within time to be amended or where claims are deliberately incorrect or fraudulent, as these will be re-directed to HMRC’s Contractual Disclosure Facility.
Why has HMRC launched the R&D Disclosure Service?
This disclosure scheme is one of numerous actions HMRC has taken in recent years to reduce the high perceived levels of fraudulent and/ or incorrect R&D claims, having already introduced new claim procedures, increased the number of compliance checks it performs, and doubled the tax under consideration to £641m in 2023/24.
Despite these changes, HMRC’s August 2024 annual report showed that high levels of fraud and error in R&D claims persist, with the report estimating it to be 7.8%, or £601m, for 2023/24.
HMRC has also highlighted the prevalence of unscrupulous agents and advisers, who have sought to abuse R&D tax reliefs by encouraging clients to make ineligible claims, with specialist agents even targeting businesses in sectors that are highly unlikely to involve R&D activity, such as care homes, childcare providers, personal trainers, wholesalers, retailers, and pubs and restaurants.
In 2024, HMRC officers executed several warrants at tax advisers’ premises in relation to tax relief fraud allegations.
What should companies do if they think their R&D claims may have been incorrect?
Companies that suspect any previous claims may be incorrect should act as soon as possible, but not before taking legal and tax advice.
For the disclosure process, companies will need to understand the accountancy period to which their disclosure relates, as well as exactly what was incorrect in previous claims. They will also need to calculate the amount and make an offer of tax, penalties and interest owed, which can be complex. Any mistakes made during a disclosure could risk further penalties or investigation by HMRC.
If a company sought advice at the time of making the R&D claim, the name of the agent who prepared the claim must be disclosed, and companies may also be able to claim against an adviser for breach of contract and/ or negligence. In doing so, companies may even be able to recover any costs they have incurred, penalties, and interest.
Our professional negligence team can advise you on any potential claims against advisers for negligent advice, including how best to protect yourself in relation to any limitation or recoverability issues, particularly where unregulated and uninsured firms are concerned.