In a move to address the growing concerns surrounding inaccuracies and potential fraud in Research & Development (R&D) tax relief claims, HMRC has launched a new disclosure service. This initiative comes as a response to alarming figures highlighting the extent of non-compliance ...
A report published in 2023 revealed significant issues in R&D claims for the tax year 2020-21. The findings estimated that 24.4% of claims by value in the SME R&D tax relief scheme and 3.6% in the larger company (RDEC) scheme were either erroneous or fraudulent. This equated to a staggering £1.13 billion in non-compliant claims.
In response, HMRC reiterated that such levels of non-compliance are unacceptable and has taken steps to ensure stricter oversight. The newly introduced disclosure service is one such measure, designed to encourage businesses to proactively address past errors.
The disclosure service allows companies to inform HMRC if they:
- Claimed too much R&D tax relief - Are unable to amend their tax return due to time constraints - Need to pay additional Corporation Tax or repay overpaid tax credits related to R&D relief
The service can be used either by the company itself, typically through a director or company secretary, or by a representative such as a tax adviser.
The timing of the service's launch, announced on New Year's Eve, has drawn criticism from tax professionals. I feel that launching this when they did won't have helped awareness as it's a busy time of year for businesses and advisers alike, and many might have missed this development altogether.
The timing aside, there are also concerns about the incentives (or lack thereof) for businesses to use the service. The absence of incentives such as protection from criminal prosecution or extended payment terms is a significant deterrent. For some businesses, these assurances would make a considerable difference in deciding whether to come forward.
The R&D tax relief landscape has become increasingly complex in recent years, with tightened regulations to curb abuse. However, these changes have also made it harder for genuinely innovative SMEs to access support. While I feel that it's crucial to address non-compliance, the current framework can feel overly restrictive for SMEs that genuinely engage in R&D activities. This creates a challenging environment where businesses may struggle to navigate the system, particularly if they've previously worked with less reputable claims agents.
The rise of unscrupulous R&D claims agents has exacerbated the issue. Some of my own clients have been approached by agents promising inflated claims without proper substantiation. For businesses that now realise their claims were speculative at best, making a voluntary disclosure is the responsible way forward.
Despite its limitations, the disclosure service represents an opportunity for businesses to rectify past mistakes and ensure compliance with tax regulations. Transparency and proactivity are key, and engaging with HMRC through this service can help companies avoid more severe consequences down the line, such as penalties or investigations.
For companies unsure about their position, seeking professional advice is essential. An experienced tax adviser such as myself can help you review past claims, determine the appropriate course of action, and liaise with HMRC on your behalf.
It's about ensuring that you're compliant while still maximising the legitimate benefits of R&D tax relief.
If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.