A Guide to Proactive HMRC Disclosures for R&D Claims
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By Sarah Scala, Partner at NHD Tax Solutions Limited and Chair of The Contentious Tax Group
Our guest author, Sarah Scala, explains voluntary disclosure, the potential for an HMRC dedicated R & D disclosure route and why this is important in today’s R & D market place.
What is voluntary disclosure?
When submitting an R&D tax claim for a company, accuracy and transparency is imperative. However, on occasion, inadvertent errors may occur. Voluntary disclosure presents an avenue for tax advisors to rectify said errors and provide more structure and information to their client’s application. Taking this proactive step can be a positive way to ensure HMRC are onside and bought into the claim, potentially resulting in lower or no penalties, greater control over the situation and peace of mind that the company’s tax affairs are up to date! HMRC accepts many disclosures online using its Digital Disclosure Service but there is currently no mechanism specifically to disclose R&D tax claims.
When is voluntary disclosure appropriate and how to go about it?
A lot of my work involves disclosures to HMRC, whether that be unprompted (also known as voluntary) or prompted disclosures. I am also occupied daily on R & D related matters and so I recently considered whether taxpayers and advisers might benefit from proactively engaging with HMRC to disclose errors in claims before HMRC opens an enquiry. Let me explain how this would work and the benefits.
Common themes occur time and time again for both strong and weak claims. This includes reports that lack the information HMRC are looking for in order to be satisfied that a claim qualifies or financial schedules that are insufficiently detailed and/or difficult to cross reference to the report narrative. The existence of these factors may result in HMRC wanting to ask questions in the form of an enquiry before agreeing a claim, even for strong claims if the report and financial schedules share the above characteristics.
What are the benefits of voluntary disclosure?
Let’s consider the following scenario – you take on a new client and are asked to prepare the next R & D claim. Naturally, you review claims submitted for earlier years. During that review you question some of the costs included in earlier years’ claims and do not feel comfortable preparing the next claim in the same way. However, if you submit a more conservative, and in your view, more accurate claim, could this cause HMRC to enquire into the earlier claim(s).
In this case, there are benefits to identifying the weak areas of the earlier claim and, assuming that the normal time limit for amending a return has passed, making a disclosure to HMRC.
So, what are the possible benefits of making a disclosure to HMRC to inform them of how you wish to amend an earlier claim?
- Confidence in future claims offering you reassurance as the new adviser
- Reduces the likelihood of future HMRC enquiries
- Possible positive impact on fee protection insurance
- Maintain ethical standards
A tax dispute specialist such as myself will be able to support you in understanding when a potential need to make a disclosure arises, what options there are at present whilst there is no dedicated R & D disclosure route and we can also help you to understand the dynamic between R & D adviser and accountant, the dispute specialist and your client.
Takeaways
- When making a disclosure to HMRC:
- Consider the most appropriate disclosure route for the taxpayer
- Take time to understand the background to the issue
- Consider penalties early on as you will need to present the disclosure in a persuasive manner to obtain HMRC’s agreement to your proposed penalty percentage (which might be 0% given the unprompted nature of the disclosure).
- Consider if you need specialist support – if you are not sure, speak to us and we will help you to decide.
- Know how to progress the disclosure once accepted.
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We recently delivered a webinar where Sarah joined Mike Dean to explore some further details on voluntary disclosures for R&D. You can watch an on demand version on our YouTube channel here:
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Do you need help?
If you would like to discuss any client specific dispute related matters, please feel free to contact Sarah.
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About the author
Sarah is a Partner at NHD Tax Solutions Limited, the fastest growing independent tax disputes business in the UK. Sarah is also Founder and Chair of The Contentious Tax Group which brings together tax disputes specialists to collaborate, discuss topical issues, HMRC activity, HMRC treatment and to highlight inconsistencies in HMRC’s handling of dispute cases.
The group has established itself as a nationwide voice for the tax disputes profession and members regularly meet with very senior individuals within HMRC and have even attended the House of Commons to share our views with MPs on current HMRC working practices, including HMRC’s handling of research and development claims.
