Welcome to our April tax update. We hope you enjoy reading this newsletter and find it useful. Please contact us if you wish to discuss any issues further.
“NUDGE” LETTERS FROM HMRC ABOUT R&D CLAIMS
Following the alleged abuse of the Research and Development (R&D) tax relief schemes, particularly the SME tax credit scheme, HMRC has issued “nudge” letters to the directors of over 2,000 claimant companies asking them to check their claims. Here is an extract from the letter:-
“As Company Director, it’s important you submit accurate claims for the correct amount of tax relief. If we check a claim and find it’s incorrect, your company might be asked to pay back the full amount.
This letter is not a compliance check into your Company Tax Return. It is to help you make sure your claims are complete and correct.
What you need to do now
Please review your previous R&D claim using the checklist below to make sure all the information you have given is complete and correct.
- Have you read and understood the HMRC guidance on R&D?
- Have you considered the conditions for making an R&D claim? Are you happy that the project is seeking an advance in the field of science and technology?
- Do you understand what you’re claiming for?
- Who has helped with the supporting R&D report and are they qualified to do so?
- Have you read the R&D report, and do you agree with its contents?
- If you’re working with a third party to make a claim, have they answered your questions satisfactorily?
- Does this claim seem to be too good to be true?
If you’re unsure about the answers to these questions, you should contact HMRC….
…..In some circumstances we may need to open an enquiry into your claim. This could lead to a delay in us paying you any tax relief due. It could also mean that we have to reject your claim if we find it’s incorrect. And we could charge you a penalty. The best way to avoid delay, rejection of your claim, or penalties is to check your previous and future claims online now.”
We encourage all R&D claimants to consider questions 1-7 above and to contact us if they have any queries.
PENALTIES FOR CARELESS AND DELIBERATE ERRORS
As well as charging interest on tax paid late, HMRC may also levy a penalty where there is an error in a tax return. These penalties may be judged as careless or deliberate and the level of penalty will also depend upon whether or not;
- the taxpayer has been upfront, making unprompted disclosures to correct the error;
- the error was deliberate; and
- the error was concealed from HMRC.
This matter is topical following the recent sacking of the former Chancellor of the Exchequer and Chairman of the Conservative Party Nadeem Zahawi who was adjudged to have been careless in connection with the reporting of capital gains and allegedly received a 30% penalty.
The amount of the penalty is based on the Potential Lost Revenue (PLR) and the range of penalties is set out in the table below:
Higher maximum penalties may apply when offshore matters are involved.
Where HMRC issues the taxpayer with a “nudge” letter that would be regarded as a prompt from the department and thus potentially increases the level of penalty that might be imposed.
The law defines ‘careless’ as a failure to take reasonable care and needs to have consideration of the taxpayer’s abilities and circumstances. In HMRC’s view, it is reasonable to expect a person who encounters a transaction or other event with which they are not familiar to take care to find out about the correct tax treatment or to seek appropriate advice. A taxpayer who can demonstrate that they acted on professional advice from a person with the appropriate expertise will normally be able to demonstrate they take reasonable care.
HMRC may reduce or mitigate the penalty depending on the quality of the disclosure, but any such reduction will not take the penalty percentage below the bottom of the stated range. The quality of disclosure is based on three factors – ‘telling’, ‘helping’, and ‘allowing access to records’.
HMRC may also suspend a penalty if it can be demonstrated that controls can and will be put in place to prevent the matter from occurring again in the future.
ADVISORY FUEL RATE FOR COMPANY CARS
The table below sets out the HMRC advisory reimbursement rates for employees’ private mileage using their company car from 1 March 2023. Where full reimbursement is made there is no taxable fuel benefit. The rates for the previous quarter, if different, are in brackets.
Note that for hybrid cars you must use the petrol or diesel rate and for fully electric cars the rate is now 9p per mile (8p per mile up to 28 February 2023).
You can continue to use the previous rates for up to 1 month from the date the new rates apply