New R&D disclosure facility

The Government have introduced a number of changes to the R&D scheme in recent times as part of their overall efforts to tackle error and abuse in this area. Some ways the Government have tried to combat R&D fraud include cutting the overall relief available, but this has had a detrimental impact on smaller businesses especially with valid claims; and to request more information through the additional information form which supports the claim.

With the estimated tax fraud in R&D at £1.05 billion for 2022 to 2023, HMRC have been tasked with reducing the level of error and fraud significantly.

Disclosure facilities already exist if an individual or business has something to disclose to HMRC, but similarly to introducing specific facilities for let property or crypto assets for example, a specific facility highlights HMRC’s focus on specific activity and can streamline how HMRC handle the disclosure cases which, in theory, should make the process easier for the business making a disclosure. There is hope that HMRC will staff the new disclosure facility with individuals with some experience and knowledge in R&D cases.

The additional publicity surrounding HMRC’s focus on R&D can also act as a deterrent for the minority who may choose to act dishonestly, but it can also be a marketing tool aimed at those who may find that they have made ‘careless’ as opposed to deliberate errors in their claims.

HMRC began with a ‘volume compliance’ approach to opening enquiries, which has been largely criticised by agents and the CIOT as the result has been that many valid claims have been rejected or removed from tax returns by HMRC. In some cases, HMRC enter into communications with the taxpayer or their agent but demonstrate a lack of understanding given the specialist nature of some of the R&D activity, which can in turn lead to frustrating and long-running disputes.

The CIOT has been working with HMRC to advise on how HMRC can improve their overall approach, and we understand that HMRC will be publishing a compliance action plan in due course, as well as improving internal training to help HMRC case officers know when cases need to be escalated. There are also ongoing discussions as to how agent standards can be improved; it is vital if you are considering making an R&D claim that you engage with a specialist R&D adviser, who understands the nature of your R&D activity and who can help you defend your position to HMRC if required.

A disclosure is usually required where errors or omissions have been made either carelessly or deliberately. If you spot a mistake in your company’s tax return or R&D claim and you are still in time to amend that tax return, then that is how you should correct the position.

Conversely if you are out of time to amend a return and you are aware of historic errors or omissions, then these should be disclosed to HMRC via a disclosure facility. The Digital Disclosure Service (DDS) currently exists as a catch-all facility and may be the best course of action if you have made ‘careless’ errors or omissions, until the specific R&D facility is introduced. If you need to disclose ‘deliberate’ errors or omissions, then you should consider if the Contractual Disclosure Facility (Code of Practice 9 or “COP9”) is appropriate and seek advice from a specialist in this area, such as Menzies’ Tax Disputes and Disclosures team. 

The important thing to remember if you think you have something to disclose to HMRC, such as historic R&D claims that may have been inaccurate, is to make a disclosure now using the existing DDS, or, if appropriate, through COP9. You should not delay until a specific facility is available.

At Menzies we have a team of experts who can support in preparing and advising your business on all aspects of R&D and whether your claims are valid.

If HMRC are enquiring into your R&D claim, make sure you know your rights and what courses of action are available to you if you believe you have made a valid R&D claim.