HMRC Launches New Disclosure Service for R&D Tax Relief Overclaims

HM Revenue & Customs (HMRC) has introduced a new disclosure service for businesses that have unintentionally overclaimed research and development (R&D) tax relief and failed to correct their returns. This move is part of the government’s ongoing efforts to combat misuse of the scheme, which has reportedly cost the Treasury over £1 billion in lost revenues.

The initiative targets companies that may have overstated their R&D expenditure in good faith, rather than those engaged in deliberate fraud. It follows a significant rise in HMRC investigations into questionable R&D claims, with the total amount of tax under review reaching £641 million this year, according to the department’s latest annual report.

R&D tax credits are designed to encourage businesses to invest in innovative projects, offering financial support for qualifying activities. However, the generosity of the scheme has also made it a target for fraudulent claims and organised criminal activity, with an estimated £1 in every £4 of the relief being lost to abuse in 2020-21.

Dawn Register, a tax dispute resolution partner at BDO, emphasized that companies now have various options to rectify their tax affairs. She noted that many “unscrupulous ‘claims’ agents” have taken advantage of the R&D tax credit system in recent years. “If a company now realises its past claims were ‘speculative’, a voluntary disclosure is definitely the best course of action,” she advised.

The new disclosure service is aimed at businesses that may have inadvertently overclaimed and wish to come forward voluntarily to amend their tax returns. HMRC has made clear that it is focusing on companies that may have made honest mistakes, but the service also acts as a deterrent to those who may attempt to exploit the system in the future.

As part of its crackdown on the misuse of the R&D tax relief scheme, HMRC has been stepping up its investigations and is continuing to scrutinize claims more closely. The department’s report highlighted the growing concerns surrounding the scheme’s integrity, and the new disclosure service is seen as a vital step in addressing these challenges.

For businesses looking to rectify overclaims, HMRC’s service provides a streamlined route to amend their returns and reduce potential penalties. The government is also urging companies to take responsibility for their claims, ensuring that they remain compliant with tax regulations and avoid any potential future disputes.