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What happens if there’s a mistake in my R&D claim and will I have to pay penalties?

Whilst the UK government encourages firms who undertake research and development work to claim any R&D reliefs to which they are entitled, HMRC is tasked with ensuring claims are correct and claims which appear excessive are investigated.

As we’ve highlighted recently, HMRC is currently adopting an extremely rigorous approach to R&D claims.

In light of this, here is a short guide about the implications of mistakes in R&D claims, whether identified by yourself or via an HMRC enquiry, and what penalties you might be charged.


What if I realise there’s a mistake on my R&D claim?

If you realise mistakes were made in R&D claims for earlier years, then it’s better for you to tell HMRC about it rather than letting them discover it.

Mistakes do sometimes come to light, for example, when companies change advisers or go through due diligence checks in the run-up to the sale of a business or subsidiary.

One of our expert team can advise you on the most appropriate way for you to make a ‘disclosure’ to HMRC based on your company’s specific situation and we can guide you through the disclosure process.

If you approach HMRC voluntarily you have the best chance to reduce any penalties that HMRC may seek to charge.


What if HMRC identifies a mistake in an enquiry – how far back can they look?

UK tax legislation includes three main categories of behaviours: innocent, careless (similar to negligence) and deliberate behaviour (similar to fraud).

Each behaviour is linked to the three main time limitations to charge back taxes, either four, six or twenty years respectively.

Applying the correct time limit is vital in limiting HMRC’s enquiry and can make a huge difference to the amount of tax and late payment interest charged.

It’s important that you have a tax professional on your side if you become involved in these negotiations, and we have expertise in this area.


What will the penalties be if there’s a mistake on my R&D claim?

Regardless of whether the error in your R&D claim is an honest mistake or deliberate, HMRC can impose penalties.

The penalty measures exist to ensure proper care and attention are taken when claims are prepared. If it is found that an error was deliberately made or intentionally hidden, the penalty can be as much as 100% of the tax lost. But, if you are responsive and forthcoming with information when an error is identified, the penalty is often reduced to reflect your cooperation.

If an error is found in an R&D tax credit claim, but it can still be shown that reasonable care has been taken in the claim’s preparation, HMRC can choose to apply a penalty of ‘nil’. There are also abatements and reductions for good behaviour. Good behaviour is assessed based on your sincerity and responsiveness in the event that errors are found.

Penalties can also be suspended while the reason for the tax claim error is being investigated by the company in question. HMRC could, for example, ask the company to improve their record keeping and set a review date.

We can help make representations that any penalties which are imposed should be lower and in our experience cooperation and full disclosure with HMRC through a professional adviser will help to reduce penalties.


If HMRC does impose a penalty – how long before I have to pay?

If HMRC finds that your R&D claims were excessive it will obviously expect the company to repay any reliefs to which it was not entitled.

This is likely to cause cash flow issues for most businesses.

We can help request a formal settlement incorporating a time-to-pay agreement so that the amount payable to HMRC can be settled in instalments according to a plan which acceptable to both parties.


Need our help?

Obviously, errors in R&D claims are not ideal but if do happen and you discover them it’s best to come clean to HMRC before they discover them through an enquiry. If you need our help in this area please get in touch.

R&D claim

The information was correct at time of publishing but may now be out of date.

R&D Tax Relief
Posted by Cowgills
9th May, 2023
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