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 Reviewed by Clive Flood, Chief Operating Officer | 1 February 2024.

What penalties can apply after an HMRC enquiry into an R&D tax relief claim?

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.

How is an HMRC penalty calculated?

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.

How do HMRC establish if the error was careless, deliberate or concealed?

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:

  • How did your company find out about R&D tax relief?
  • What was the advance the company was trying to achieve in their R&D?
  • What prompted your decision to make a claim?
  • Did you decide or was it initiated by an agent or your accountant?

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:

  • What knowledge do you have about R&D tax relief?
  • Who put together the claim?
  • Did you read the BEIS guidelines to understand the meaning of R&D?
  • Before the return was submitted were you able to understand the requirements of R&D tax relief?
  • Did the company view, question, agree and approve the report generated by the agent or accountant before the claim was submitted?
  • Did you check and approve the computation before the claim was submitted to HMRC?

3. Advice – What your agent or accountant did, what they encouraged you to do, and how you appointed them.

  • When did you first have contact with the agent about making a claim?
  • Did they contact you or did you contact them?
  • What research did you undertake to ensure that they were suitably qualified?
  • Did you check HMRC’s guidance or ask your usual accountant/auditor for any advice on your R&D claim?

4. Documentation – sufficient documentation and evidence to support the claim.

  • What information did the agent ask for and what information did you provide?
  • What documentation did the agent ask for and what documentation did you provide?
  • What records were used to calculate the qualifying expenditure in the claim?
  • Did the company use any other records to substantiate the claim for R&D tax relief?

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