New HMRC disclosure facility for R&D – what do you need to know?
HM Revenue & Customs (“HMRC”) have significantly intensified scrutiny over Research & Development (“R&D”) tax relief claims with increased compliance checks in this area. HMRC estimate that inaccurate R&D claims as a result of error or fraud amounted to £1.3 billion in 2021-22, which is 17.6% of the total value of claims.
In recognition of this challenge, one of the commitments of the Government as part of its Corporate Tax Roadmap was to “launching an R&D disclosure facility by the end of 2024”.
On 31 December 2024, HMRC launched its new R&D disclosure service where a corporation tax liability arises as a result of inaccurate R&D claims.
The disclosure service allows R&D claimants who have incorrectly overclaimed R&D tax relief in the past, and are no longer in time to amend their corporation tax returns, to disclose the issue to HMRC voluntarily and repay what is owed. A company that is still in time to amend their corporation tax return within 12 months of the tax return filing deadline (i.e. within 24 months of the accounting period end) must do this rather than using the disclosure facility.
Whilst the disclosure service does not offer any favourable terms, an unpromoted voluntary disclosure to HMRC can help mitigate any potential penalties which are charged on the outstanding tax, help a company control the process of rectifying a historical issue with HMRC and provide certainty for future claims.
The following illustrates how a company with a December year end would rectify their historical position:
Key takeaways:
- The R&D disclosure service uses an online form and there is no pre-registration requirement. You can submit your historical disclosure immediately or you have up to 90 days to complete it from when you commence the form.
- The disclosure form requires a taxpayer to upload calculations of the R&D tax relief overclaimed, together with confirmation of any late payment interest and the penalty amount which is dependent on a range of factors.
- As part of the online form, the company will be asked to confirm why the inaccuracy arose. This will have implications for both the periods for which disclosure must be made and potential penalty implications.
- The company is required to complete a ‘Letter of Offer’ in an HMRC standard format, which will form part of a contractual settlement with HMRC to rectify the historical issue.
- Upon submission of the disclosure, HMRC will either issue an ‘Acceptance Letter’ (which concludes the contract settlement) or ask further questions within 30 days.
- Within 15 days of submission, the taxpayer should be given a payment reference number linked to the disclosure to make the outstanding tax payment which is owed.
- A separate mailbox submission rather than the online disclosure service is required if the disclosure does not result in a corporation tax payment or repayment of overclaimed tax credits – e.g. tax losses carried forward are restated. For these instances there is still a requirement to provide a description of the behaviour that caused the inaccuracy, and penalties could still apply to overstated losses.
- In cases of ‘deliberate behaviour’ companies should instead use the Contractual Disclosure Facility (CDF) – Code of Practice 9. Broadly, HMRC regard deliberate behaviour where a taxpayer has knowingly and/or intentionally made inaccurate claims for R&D relief. This is a unique HMRC process and if it is not adhered to, HMRC reserve the right to commence a criminal investigation1.
What should I do now?
The introduction of the disclosure facility is a dedicated route for taxpayers to address inaccuracies in their tax compliance filings which included erroneous R&D claims. For example, some taxpayers may have relied on third-party agents preparing R&D claims on their behalf and not given sufficient consideration to, or in some cases were unaware of the contents of, the R&D claim being submitted to HMRC on their behalf.
As such, it is recommended that taxpayers who have made R&D claims in the past ensure that they are comfortable with the content of their R&D claims and are confident that they would be able to defend the claims in the event of an HMRC enquiry. If there are any doubts or concerns regarding the claims or their previous advisers, it would be a good opportunity to seek specialist advice to review these in case any corrections need to be made.
It is hoped that the new facility will allow taxpayers to deal with historical issues in an efficient manner.
It is recommended that specialist advice is sought before making any historical disclosure to HMRC for the following reasons:
- It is vital for a company to carefully consider why the historical inaccuracy arose as this will impact the periods of disclosure and the quantum of the penalties to be charged. Often such a determination must consider legislative definitions, HMRC guidance and case law.
- Any amendments to the R&D tax computations will need to be compliant with the legislation. Often computations are complex and require specialist input.
- Consideration as to whether the disclosure service is the most appropriate route to rectifying the historical issue, or what other options are available.
Deloitte’s combination of R&D tax relief specialists, former HMRC inspectors and tax controversy experts can ensure that any historical tax disclosures in relation to R&D are dealt with in the most effective manner.
For more information, please contact our specialists using the details below or your usual Deloitte adviser.
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