The UK HM Revenue & Customs (HMRC) has introduced a new disclosure service for companies that may have erroneously claimed excessive R&D tax relief in previous years.
This initiative aims to address the significant level of errors and fraudulent claims identified in R&D tax relief schemes.
In an analysis of the 2020-21 claims, HMRC found that nearly one-quarter of small and medium enterprises (SMEs) scheme claims and 3.6% of R&D expenditure credit scheme (RDEC) scheme claims were incorrect or fraudulent, costing the Exchequer an estimated £1.13bn ($1.4bn).
The R&D disclosure service is specifically aimed at serving companies that have made accidental overclaims and are unable to amend their tax returns due to time constraints.
However, companies with deliberate overclaims or fraudulent activities are excluded from this service.
HMRC’s stance on non-compliant behaviour is becoming increasingly strict, as evidenced by the doubling of tax under consideration in R&D investigations to £641m in the 2023/24 period, according to the Wealthy and Mid-sized Business Compliance Directorate’s annual report.
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By GlobalDataBDO tax dispute resolution partner Dawn Register 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.”
In December 2024, HMRC urged more than 12 million taxpayers to file for the 2023-24 tax year, by 31 January 2025 deadline for online Self Assessment tax returns.
Taxpayers who fall into various categories, including those with rental income more than £2,500, partners with child benefit where one earns above £50,000, and self-employed individuals earning more than £1,000, are urged to file their returns and pay any tax owed.
