HMRC launches new disclosure service for companies who have overclaimed R&D tax relief

 The new service has been launched in response to concerns about the high level of error and fraud in R&D claims.

 In 2023, HMRC published an analysis of R&D claims from 2020-2021 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.

 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.

 However, the service is not available to companies whose behaviour was deliberate. 

This would include instances in which companies knew they owed tax or had overclaimed R&D tax credits but chose not to tell HMRC, or where the claim was deemed fraudulent by HMRC because the company activity did not qualify for the relief at all.

 While this initiative is designed to encourage voluntary compliance, HMRC’s latest annual report suggests that the tax authority is also getting much tougher on historic R&D tax relief claims. 

The latest figures published in August 2024 showed that the tax under consideration in R&D investigations being carried out by HMRC’s Wealthy and Mid-sized Business Compliance Directorate had doubled over the past year to reach £641m in 2023/24.

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.”