With all the difficulties that this landscape poses, tax advisers have a valuable tool available to them – the voluntary disclosure. This mechanism empowers advisers to take control, rectify errors, and bring more structure to the process of handling R&D tax relief claims.

HMRC has launched a new online service to facilitate voluntary disclosures of errors in Research and Development (R&D) tax relief claims. 

The disclosure form can be found on the gov.uk website, along with guidance on how to work out the penalties and interest. 

This service is a major development for companies and agents who want to correct mistakes on R&D claims and avoid penalties. We’ll walk through the new procedure – outlining who can use it, when it should be used, how to use it, and other important points to consider.

Who can use the Voluntary disclosure service?

The new online service is available for companies that have overclaimed R&D tax relief. The service is voluntary. Disclosures can be made by the company secretary, a director, or an agent acting on the company’s behalf. If the agent making the disclosure is not the company’s authorized agent, they must complete and upload form COMP1a. This ensures that HMRC is dealing with a person who has authority to act for the company and helps to protect both the company and the tax system.

When to use the voluntary disclosure service

The online service is specifically for cases where the company has claimed too much R&D tax relief. It should not be used for other types of voluntary disclosures. There are several crucial conditions that must be met to use this service:

  • Overclaimed R&D Tax Relief: The service is exclusively for correcting errors in R&D tax relief claims.
  • Expired Amendment Time Limit: The time limit for amending the tax return has passed. Generally, this limit is 12 months from the filing deadline for the return. If the company is still within this period, it should amend its return through the normal channels.
  • Tax Due or Credits to Repay: The company must owe corporation tax or need to repay overclaimed tax credits to use this service. If no tax is due or credits to be repaid, the company should email RD.IncentivesReliefs@hmrc.gov.uk to rectify the error. 
  • Non-Deliberate Error: It is critical that the error was not the result of deliberate behaviour. Companies that deliberately made incorrect claims should consider using the contractual disclosure facility.

How to use the voluntary disclosure service

The process involves submitting an online form along with supporting calculations. HMRC provides guidance on the information required to complete the form and prepare the calculations. At the end of the form, the company can submit a letter of offer to HMRC, which forms part of a contract settlement.

The offer should include the tax due, the credits to be repaid, plus interest and penalties. To accurately calculate these amounts, the company needs to determine the relevant accounting periods, considering HMRC’s time limits for recovering tax. HMRC’s guidance details the procedures for calculating interest and penalties.

Next steps after voluntary disclosure

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. The payment can be made online. If the company cannot pay the full amount owed, it can request time to pay, and HMRC usually allows up to 12 months.

Important Considerations

Accountants and tax advisors should consider the following points when advising their clients:

  • Potential for increased penalties: A company that makes an error in an R&D tax relief claim may face additional interest and penalties if they wait for HMRC to contact them, rather than making a voluntary disclosure. In some cases, HMRC could also launch a criminal investigation.
  • Professional expertise: Before making a disclosure, ensure the company or agent has the required knowledge and skills. This includes accurately identifying if an error has been made, as well as correctly calculating the tax, interest, and penalties.
  • Consequences: Both the company and the agent should be fully aware of the consequences of making a disclosure. Seek guidance from those with experience in R&D tax relief claims and voluntary disclosures if needed.
  • Professional conduct: Tax professionals must remember their obligations regarding professional conduct in relation to taxation.

Hard conversations around R&D eligibility

This new online service provides a streamlined process for companies to voluntarily disclose errors in R&D tax relief claims. The most common time for errors to be uncovered is when you have a new client coming onboard who has claimed previously with a different advisor.

As with any new client, it’s important to conduct a thorough eligibility assessment of all their R&D projects. Download our free Eligibility Checklist to help you streamline your technical meetings and be sure you’re getting all the details you need to make an accurate claim.