R&D tax relief enquiries – use of power to correct Corporation Tax return

The CIOT has been made aware that HMRC are using paragraph 16 of schedule 18 to FA 1998 to correct Corporation Tax return by removing the claim for R&D tax relief. We asked HMRC about the use of this power and the impact on the new requirement for an additional information form in relation to R&D tax relief claims. Below is the response from HMRC. The letter of 29 August referred to is the response from HMRC to our letter to them about the conduct of R&D tax relief enquiries – see R&D tax relief enquiries and our press release (R&D claims: CIOT welcomes HMRC recognition that improvements are needed).

Response from HMRC

In ‘HMRC’s approach to Research and Development tax reliefs’, published in July 2023, we set out the scale of non-compliance in the regime, and that HMRC needs the full range of the departments investigative and compliance techniques to address this. This includes using paragraph 16 of schedule 18 to FA 1998 where it’s appropriate for us to do so.  

Paragraph 16
sets out: 

16(1)  An officer of Revenue and Customs may amend a company tax return so as to correct– 

(a) obvious errors or omissions in the return (whether errors of principle, arithmetical mistakes or otherwise), and 

(b) anything else in the return that the officer has reason to believe is incorrect in the light of information available to the officer. 

In this scenario, we are correcting returns to remove the R&D claim where we have reason to believe it is incorrect, given the information available to us. We are currently trialling the use of this approach in a small number of claims. 

We recognise, having reviewed the examples you provided, that we could do more within the letter to explain the reason why we consider the claim to be incorrect.  Due to your feedback we have reviewed the process and made amendments to the letters that will be issued to the customer to help them understand the reasons we believe an R&D claim is not appropriate.  

We explained in our letter on 29 August that we are committed to demonstrating the HMRC Compliance Professional Standards in our compliance work, and we will continue to listen to your feedback, alongside our own quality monitoring, in order to improve our processes.   

As you say, from 8 August 2023 any new R&D tax relief claims must also include an Additional Information Form.

Where a company is intending to reject a correction we have made via amendment to the return, this will not be considered a new claim, but
reinstating the claim made previously. Therefore if the initial claim was made before the requirement to submit the Additional Information Form, then the company will not be required to submit an Additional Information form.