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 ...
It's about ensuring that you're compliant while still maximising the legitimate benefits of R&D tax relief!
The launch of this service aims to provide businesses with a clear pathway to rectify historic errors in their claims, particularly when amendments to tax returns are no longer possible due to time limitations.
"The timing and structure of this initiative have raised questions!"
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.
"There are challenges with R&D claims!"
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.
"It also demonstrates a willingness to correct errors, which can be looked upon favourably!"
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.
Until next time ...
HELEN BEAUMONT
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about R&D tax credits and how you can ensure your claim is accurate and successful, it may be a great idea to give me a call on 01908 774323 and let's see how I can help you.
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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