HMRC launches R&D tax disclosure service
Will Drysdale, Senior Reporter, Business & Accountancy Daily
HMRC has set up a special R&D disclosure scheme for companies which have made excessive claims and are out of time to amend corporation tax returns
Companies are eligible if they can no longer amend their corporation tax returns, need to pay further corporation tax or pay back overpaid tax credits for research & development (R&D) tax relief, as well as those who have simply overclaimed the relief.
The R&D Disclosure Service is open to directors, company secretaries and tax advisers. It is separate to the current contractual disclosure facility.
Once a disclosure has been made HMRC will then decide if it will be accepted or if there is additional information needed, which will take up to 15 days.
Several pieces of information will be needed to begin the process starting with the company’s unique taxpayer reference, as well as the registered address, and the standard industrial classification code.
The accounting periods and the reason for the mistake being made must also be shared with HMRC to process the disclosure, as well as the amount owed back to HMRC.
If the disclosure is accepted by HMRC, the full amount owed will also be expected to be paid within 12 months.
But the scheme has few advantages unlike other disclosure facilities as HMRC will not waive penalties.
Dawn Register, a tax dispute resolution partner at BDO said: ‘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.’
The qualifying criteria are also very tight so be careful before rushing in to using the service. Unfortunately there are plenty of rogue R&D claims firms operating, which means companies could have been unwittingly drawn into R&D claims which were patently not bona fide.
Peter Clark, R&D technical director and co-founder at RCK Partners, 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.
‘It is 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.’
Despite the opening of the new disclosure service, HMRC stressed that there are other options if the company purposely claimed too much R&D relief.
Criminal investigations could also be opened by HMRC if a company waits for the tax authority to contact them, as well as the risk of penalties.
Robert Whiteside, CEO of EmpowerRD said: ‘HMRC is responding to increased public scrutiny around the scheme, not helped by a number of bad actors tarnishing its reputation, but it’s important to remember that by adhering to best practice and compliance, UK businesses can unlock significant growth opportunities and make vital advancements.’
R&D guidance due for update after HMRC case losses
R&D relief has been under the spotlight for many years, with HMRC recently deciding not to appeal two large cases it lost at the FTT, saying that taxpayers with ongoing enquiries will be updated this month.
Updated R&D guidance is also set to be published by HMRC in February 2025.
It should be noted that an incorrect disclosure can result in penalties, which then attract interest if they are not paid on time. This can be reduced after a company voluntarily discloses the correct amount, but it is ‘unlikely that we’ll reduce the company’s penalty by more than 10% above the minimum of the statutory range’, said HMRC.
