If any reduction or change is made to the original submission of an R&D tax relief claim, then it is deemed as an inaccuracy. At this point HMRC are obliged to consider penalties.
The penalty is calculated as a percentage of the extra tax that becomes due when the mistake or inaccuracy has been corrected. The percentage that applies will depend on the type of error and when and how HMRC found out about it.
The penalty will be less if you inform HMRC about the error before they identify it – an ‘unprompted disclosure’. If HMRC discover the error, or if you inform them because you thought they were about to find out, this is called ‘prompted disclosure’.
If you can demonstrate that you took reasonable care but still made a mistake, HMRC might decide to apply a penalty of “nil”.
There may also be penalty reductions for disclosure and the quality of that disclosure. The more a person tells, helps, or gives access to HMRC, the more the penalty will be reduced.
Once a change or reduction is found then HMRC will ask a series of questions. These broadly fall into the following 4 categories.
1. Intent – Why you made the claim and how you came to know about the scheme.
This could include questions such as:
2. Knowledge and Personal Ownership – your knowledge of the scheme and whether you checked and approved the work that was being done on your behalf.
This could include questions such as:
3. Advice – What your agent or accountant did, what they encouraged you to do, and how you appointed them.
4. Documentation – sufficient documentation and evidence to support the claim.
