Limited window for correcting any R&D tax relief claim issues
Since 2023, there has been a lot of uncertainty regarding Research and Development (R&D) tax relief, prompted by HMRC concerns over widespread abuse of the R&D tax relief regime. In late 2024, HMRC intensified its enforcement efforts against fraudulent claims, culminating in a series of high-profile raids targeting advisers and promoters suspected of orchestrating widespread abuse of R&D tax relief. This led to multiple arrests and increased scrutiny on companies that may have unknowingly benefited from aggressive or misleading claims.
To address growing concerns surrounding R&D tax relief claims, HMRC has introduced a dedicated R&D disclosure facility.
With a reported £1.34 billion lost to incorrect or fraudulent claims in 2021-22, although predictions for 2022-23 are lower due to increased scrutiny and changes to the scheme, this new R&D disclosure facility offers companies an opportunity to rectify historical overclaims.
Why has this been introduced?
The statistics are striking. Analysis revealed that 25.8% of SME scheme claims and 0.13% of RDEC scheme claims were either incorrect or fraudulent. The new disclosure facility offers companies an opportunity to make a voluntary disclosure before HMRC investigates their R&D tax relief claims.
The facility allows businesses to correct past claims and receive favourable penalty reductions, especially where the disclosure is unprompted.
Who can use the service?
The service is not available to everyone. A company can only use it if:
- Either a company director or its R&D tax advisor made an innocent or careless error in the R&D tax relief claim. If the behaviour that led to the error was deliberate, there is a separate process that must be followed.
- The time limit for amending the tax return has passed.
- Additional Corporation Tax is due, or overpaid tax credits need to be repaid.
If you are a Director, Company Secretary, or Authorised Agent, you can make the disclosure on behalf of your company.
The good news
Despite concerns about its implementation, the R&D disclosure facility provides several advantages for businesses:
- Reduced penalties – Voluntary/unprompted disclosures attract more favourable terms compared to waiting for HMRC to start an investigation. In fact, a careless unprompted disclosure can be reduced to a 0 % penalty.
- Peace of mind – Companies that may have been misled by unscrupulous R&D agents can correct their claims.
- A structured approach – Businesses have a clear framework for calculating and settling any liabilities.
The challenges
It is important to note that for errors arising from fraudulent or deliberate behaviour, there are no specific incentives, such as protection from criminal prosecution. Instead, businesses may wish to consider HMRC’s Contractual Disclosure Facility (CDF), which provides immunity from criminal prosecution—but only in respect of what has been disclosed.
Time limits
Understanding the time limits is essential:
- If you took reasonable care, you have four years from the end of the relevant tax period to disclose.
- If the error was due to carelessness, this extends to six years.
- For deliberate errors, this can extend to twenty years, which is why CDF should be seriously considered.
Financial implications
When submitting a disclosure via the R&D disclosure facility, businesses will need to calculate:
- The full amount owed, including Corporation Tax and any fees paid to agents.
- Interest charges on late payments.
- Penalties, which vary depending on behaviour and the timing of disclosure.
The bottom line
Given the ongoing criminal investigation into multiple R&D tax advisors—whom companies may have relied on to assist with their claims—the urgency to review your claims and seek expert support has never been greater.
For companies concerned about previous claims, particularly those made through questionable agents, this facility offers a valuable opportunity to set things right. Acting voluntarily through this disclosure facility is likely to lead to better outcomes than waiting for HMRC to uncover any issues.
While the disclosure facility is not without its challenges, it provides a structured way for companies to address historical inaccuracies in R&D claims.
For all companies, this facility represents a significant shift in HMRC’s approach to managing R&D tax relief claims and serves as a reminder to:
- Carefully verify future R&D claims.
- Use reputable tax advisers.
- Regularly review R&D claims.
- Maintain accurate and thorough documentation.
We are here to help
If you believe your company needs to make a disclosure, gather all relevant documentation and strongly consider seeking professional advice.
Azets has significant experience assisting companies with their R&D tax claims. At Azets, we understand the complexities of R&D tax relief and the importance of getting claims right. Our team of R&D, Tax Investigations and Dispute Resolutions work together to help businesses assess their claims, ensuring they are both accurate and compliant with HMRC’s requirements. We offer comprehensive support, from reviewing current claims to guiding clients through the process of making voluntary disclosures if necessary.
We can assess the validity of your claims, help you navigate any potential risks, and handle all communication with HMRC on your behalf.
If you have concerns about your R&D tax relief claims or the recent changes in HMRC’s approach, please get in touch via the form below or contact your usual Azets advisor.