Have you overclaimed R&D relief?
There have been major changes over the last couple of years to the tax incentives for expenditure on research and development (R&D). Most companies now come within the RDEC (Research and Development Expenditure Credit) regime, although some companies qualify for the R&D-intensive scheme, which is for small and medium-sized companies that have R&D expenditure constituting at least 30% of (broadly) total tax-deductible expenses plus capitalised R&D costs.
Having for many years adopted a ‘light touch’ approach to processing R&D claims, in recent times HMRC has beefed up its procedures in this area. For example, any new claimants (or those who have not made a successful R&D claim in the preceding 3 years) now must give HMRC notice of their intention to make a claim within six months of the end of the relevant accounting period. If this six-month deadline is missed, any claim will be rejected, even if in all other respects it meets the qualifying conditions. Note, however, that the time limit for a valid R&D claim remains two years from the end of the relevant accounting period.
HMRC realises that, over recent years, many companies may have made erroneous R&D claims inadvertently, with the errors not being picked up by HMRC. It has therefore launched a new online service to disclose errors made in claims.
The key points from HMRC’s guidance are as follows.
- The service can be used where all the following conditions are met:
- The company has claimed too much R&D tax relief.
- The time limit for amending the tax return to correct the claim, which is generally twelve months from the filing deadline for the return, has passed. (The company should amend its return in the normal way if it is within the permitted time limit.)
- The company needs to pay corporation tax or to pay back overclaimed tax credits.
- The company’s behaviour in making an incorrect claim was not deliberate.
- The disclosure is made by submitting an online form and supporting computations. HMRC’s guidance sets out the information needed to complete the form and prepare the computations.
- At the end of the form, there is a ‘letter of offer’, which the company can submit to HMRC as part of a contract settlement. The offer the company makes to HMRC will include:
- the tax due/credits to repay; plus
- interest and penalties.
- Once the disclosure has been made, HMRC will either request more information or issue a letter of acceptance.
- The company should receive a payment reference number within 15 calendar days of making the disclosure, following which the amount due can be paid online. If the company cannot pay what it owes in full, it can ask HMRC for time to pay, but HMRC will usually ask the company to pay the full amount within 12 months.
HMRC’s guidance explains how to do this and how to calculate the interest and penalties.
Note that a company that has made an error in a claim for R&D tax relief is likely to be charged greater penalties if it is contacted by HMRC rather than making a voluntary disclosure. Depending on circumstances, HMRC may also decide to open a criminal investigation.
If you think that your company may have overclaimed R&D relief in recent years, please get in touch to discuss making a voluntary disclosure. There is much to consider, but it is better to come forward yourself than wait for HMRC to issue discovery assessments on your company.