HMRC has introduced a new Research and Development (R&D) Disclosure Service for companies that have made excessive claims and can no longer amend their corporation tax returns. The scheme is designed for businesses needing to repay overclaimed R&D tax relief or tax credits. It is also available for those who have realised they incorrectly claimed the relief, even if no fraudulent intent was involved.

Who is eligible?

The scheme applies to companies that:

• Are out of time to amend corporation tax returns.
• Need to repay overpaid tax credits or pay additional corporation tax.
• Have overclaimed R&D relief, regardless of intent.

The disclosure service is available to company directors, secretaries, and tax advisers. However, it operates separately from HMRC’s contractual disclosure facility, which typically addresses cases of deliberate tax evasion.

How the process works

To initiate disclosure, companies must provide:

• The company’s unique taxpayer reference (UTR).
• The registered office address.
• The standard industrial classification (SIC) code.
• The relevant accounting periods.
• The reason for the error.
• The amount owed to HMRC.

Once submitted, HMRC will review the disclosure, usually within 15 days, to decide if further information is required. If accepted, the company must repay the full amount within 12 months.

Limited benefits and strict criteria

Unlike other disclosure facilities, this scheme offers limited advantages. HMRC will not waive penalties, and the qualifying conditions are strict. Companies should carefully consider their eligibility before proceeding.

One key driver behind the scheme is the increasing number of rogue R&D claims firms. Many companies may have inadvertently submitted exaggerated or incorrect claims through such firms. While this scheme allows voluntary disclosure, HMRC has emphasised that other avenues exist for those who knowingly made fraudulent claims.

Risks of inaction

Failing to disclose excessive claims could lead to criminal investigations and significant penalties. If HMRC initiates contact before a company discloses, the consequences could be more severe.

Incorrect disclosures may also result in penalties and interest, particularly if the repayment is delayed. However, HMRC has indicated that voluntarily correcting mistakes could reduce penalties. In most cases, reductions will not exceed 10% above the statutory minimum.

However, some experts say 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.

Recent developments and future guidance

R&D tax relief has faced increased scrutiny in recent years. HMRC recently opted not to appeal two significant tribunal cases it lost, which may lead to further policy changes. Taxpayers with ongoing enquiries will receive updates this month, with revised guidance to be published in February 2025.

Companies involved in R&D tax relief claims should remain vigilant and seek professional advice to avoid unnecessary penalties. Addressing discrepancies early through the disclosure service could help mitigate further risks and ensure compliance with evolving regulations.

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