What to Do If You've Overclaimed R&D Tax Relief

If you've discovered that your company has claimed too much R&D tax relief, you need to tell HMRC and repay the overclaimed amount as soon as possible. Acting quickly can help you avoid higher penalties and prevent additional interest from building up. HMRC has a specific disclosure service to make this process straightforward.

When to use the R&D disclosure service

You should use HMRC's R&D disclosure service if your company:

• Claimed too much R&D tax relief
• Cannot amend its tax return because the time limit has passed
• Needs to pay additional Corporation Tax or repay overpaid tax credits

You can make a disclosure if you're a company director, company secretary, or an authorised tax adviser acting on behalf of the company.

When not to use the disclosure service

Do not use this service if:

You can still amend the Company Tax Return — if you're within the time limit to amend the return, correct the error that way instead.

The overclaim was deliberate — if your company knew it owed tax or that the figures were wrong when submitting the claim, you must use the Contractual Disclosure Facility (CDF) instead.

There's no tax to pay or credits to repay — if you've overstated losses but there's no Corporation Tax liability or tax credit repayment, contact HMRC by email at RD.IncentivesReliefs@hmrc.gov.uk with revised computations and an explanation.

You're disclosing something other than R&D overclaims — use HMRC's general voluntary disclosure process for other tax issues.

Be aware that waiting for HMRC to contact you may result in higher penalties and interest charges. HMRC may also open a criminal investigation in serious cases.

How many accounting periods to include

The number of accounting periods you need to disclose depends on why the error happened:

• If you took reasonable care — up to 4 years from the end of the relevant tax period
• If you were careless — up to 6 years from the end of the relevant tax period

You need to decide whether the overclaim happened despite taking reasonable care, or because your company was careless and didn't take sufficient care to get the claim right.

What information you'll need

Before starting your disclosure, gather:

• Your company name, Unique Taxpayer Reference, and registered business address
• Your company's Standard Industrial Classification (SIC code)
• The accounting periods the disclosure relates to
• Details of the reasons for the inaccuracy
• Name of the agent who prepared the original claim (if known)
• Name of your HMRC customer compliance manager (if you have one)

If you're an agent who isn't the company's authorised agent, you'll need to complete a COMP1a form to allow HMRC to deal with you temporarily.

Calculating what you owe

Your disclosure should include the full amount your company owes, which typically consists of:

• Corporation Tax the company has not paid
• R&D SME tax credits or R&D Expenditure Credit (RDEC) to repay
• Penalties
• Interest

Working out penalties

HMRC can charge penalties for inaccurate returns. The amount varies depending on:

• Whether the error was made despite taking reasonable care, or through carelessness
• Whether your disclosure is unprompted (you had no reason to believe HMRC had discovered or was about to discover the error) or prompted

Penalties are usually lower when you make a voluntary disclosure. However, if your company has taken a long time to correct the error, HMRC may not allow the full reduction for voluntary disclosure.

Preparing your computation

Your computation must include:

• The full original and revised Corporation Tax computation for each accounting period (not just the R&D portion)
• A breakdown of both the original and revised qualifying R&D expenditure, showing the categories claimed and amounts in each category
• Computations of any group relief amendments, including the names, UTRs, and revised computations for affected companies
• Your workings showing how you calculated any repayments or payments

You can upload your computation as a PDF, JPEG, XLSX, DOCX, or PPTX file (maximum 10MB).

Making your disclosure

Submit your disclosure using HMRC's online form. At the end, there's a letter of offer you can submit as part of a contract settlement. You must have consent from a company director or someone with authority to enter business contracts.

After submitting, HMRC will either send you a letter of acceptance or contact you for more information. You'll usually receive a payment reference number within 15 calendar days.

Paying back the overclaimed relief

Once you receive your payment reference number, HMRC recommends making payment within 30 calendar days to prevent further interest accruing. If day 30 falls on a weekend or bank holiday, ensure payment reaches HMRC by the end of the previous working day.

Payment methods

You can pay:

Online — through your bank account or by debit or corporate credit card (a non-refundable fee applies to card payments; personal credit cards are not accepted)

By bank transfer:

• CHAPS or Faster Payments — same or next day
• Bacs — allow 3 working days

For UK bank accounts, use:

• Sort code: 08 32 10
• Account number: 12001020
• Account name: HMRC Shipley

For overseas accounts, use:

• IBAN: GB03 BARC 2011 4783 9776 92
• BIC: BARCGB22
• Account name: HMRC Shipley

Make overseas payments in sterling (GBP) as your bank may charge you for other currencies.

If you cannot pay the full amount

If you cannot pay what you owe in full, contact HMRC as soon as you receive your payment reference number. Contact details will be provided with the letter containing your payment reference.

After payment

HMRC will write to confirm whether they've accepted your disclosure. If they don't accept it, they'll contact you about next steps.

Sources

• Tell HMRC if you've claimed too much Research and Development (R&D) tax relief
• Pay overclaimed Research and Development (R&D) tax relief

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.