HMRC launches new disclosure facility for overclaimed R&D tax relief

Several professional sports teams have been highlighted in the press recently for making use of HMRC’s Research and Development Scheme as HMRC launches a new disclosure facility specifically targeting overclaimed research and development tax relief.

Introduction

HMRC continues to ramp up its efforts to recover what it perceives to be lost revenue as a result of overclaimed Research and Development (“R&D”) tax relief.

The Times has recently revealed that it had identified 28 professional sports teams across football, rugby and cricket, including Chelsea FC, Nottingham Forest FC, Harlequins RFC and Northampton Saints RFC, have claimed £13m under the R&D Scheme since the end of the 2019 tax year. Whilst the article in The Times does not suggest that there are any errors in such claims, it goes on to explain that “HMRC has faced repeated criticisms for its handling of the R&D scheme, with its costs ballooning from £1.1 billion in 2010 to £7.5 billion in 2023”.

On 31 December 2024, HMRC released the details of a new voluntary disclosure facility that is intended to provide those who believe they have made errors in historic R&D claims with an opportunity to come forward and regularise their position.

HMRC has previously published information claiming it has identified £441 million in R&D tax reliefs that have been incorrectly claimed during 2023 – 2024 due to taxpayer errors and fraud. It is understood that HMRC perceives R&D tax relief to be a key area of focus in its battle to try to reduce the tax gap. It hopes that the new voluntary disclosure facility will be a significant tool in encouraging businesses to come forward as it presents an opportunity to correct errors in historic R&D tax relief claims which would ordinarily be out of time to be amended.

HMRC published guidance

The R&D voluntary disclosure facility is aimed at targeting businesses that are concerned that they may have claimed excess R&D tax relief and need to pay additional Corporation Tax or return overpaid R&D tax credits but are out of time to amend their tax return.

HMRC’s guidance on the new voluntary disclosure facility makes it clear that it is not intended for:

• Companies that can still amend tax returns.
• Errors in R&D tax relief claims made deliberately (in such circumstances the business should consult professional advisors and use the Contractual Disclosure Facility (COP 9)).
• Issues unrelated to R&D tax relief overclaims.
• Cases where no Corporation Tax or R&D tax credit repayments are due.

HMRC guidance describes the disclosure being submitted via the completion of an online form. However, our experience tells us that it is more beneficial, leading to a quicker

resolution, if the disclosure takes the form of a report to HMRC, signed off by a director of the Company, that sets out the key information and clearly explains the reasons for the inaccuracies. The report should also calculate how much the business owes HMRC. This amount typically includes unpaid Corporation Tax, overpaid tax credits, R&D expenditure credits, penalties, and interest.

One of the key advantages of using the disclosure facility is that it can minimise any financial penalties that HMRC can impose when a tax error is identified. The level of penalty is always calculated as a percentage of the amount owed to HMRC (known as the potential lost revenue) and the percentage is determined by the behaviours of the taxpayer that gave rise to the error. If a taxpayer makes a voluntary disclosure to HMRC (i.e. via a voluntary disclosure facility) that is “unprompted”, this guarantees a lower range of possible penalties that can be applied (ie, compared to disclosures that are “prompted” by HMRC action). In addition, it can also demonstrate co-operation and transparency to HMRC which can help to resolve the issues more efficiently.

Summary

The recovery of perceived tax loss associated with the use of the R&D scheme has been a key objective for HMRC for some time now. However, we have seen a significant ramping up of efforts over the last 6 months. With the added scrutiny in the press highlighting several professional sports clubs that have previously made R&D claims, it should not be unexpected to see HMRC making targeted enquiries into the use of the R&D scheme in all sectors along with an increased scrutiny into professional sports clubs.

The new disclosure facility presents businesses that have made errors in their historic claims for R&D tax relief with a good opportunity to regularise their affairs, benefit from a favourable penalty rate and avoid the stress, time and cost of dealing with an enforced HMRC enquiry.

We have significant experience in helping businesses to make disclosures to HMRC. If you are aware of errors in your historic claims for R&D tax relief or have concerns that they may contain errors, we recommend that you contact us to discuss how we can help. If you are unaware of any errors, it is still worth reaching out to us to discuss a review of your historic R&D claims to identify any potential risks.

For assistance, or to find out more, contact our authors Andy Brown and Christopher Young.