Yes — both to holding the money back and to asking for it back. If HMRC opens an enquiry before paying, it can withhold the credit until the enquiry is resolved; and it can enquire into a claim it has already paid, requiring some or all of the credit to be repaid if the claim proves wrong, with late-payment interest and, depending on behaviour, a penalty on top.
Payment is processing, not approval
The most common misunderstanding about this relief is that receiving the money means HMRC agreed with the claim. It does not. HMRC pays most claims when they are filed and checks afterwards, so the credit landing in the bank tells you the return was processed, not that anyone examined the projects or the costs. An enquiry can arrive long after the money has been received and spent, which is an uncomfortable position for a company that has already put it to work.
Long, though not indefinite. HMRC has twelve months from the day the return was delivered to open an enquiry, and once that window closes it can still make a discovery assessment where relief given is or has become excessive — ordinarily up to four years after the end of the accounting period, six years where the loss of tax was brought about carelessly, and twenty where it was brought about deliberately. The mechanism at the end of it is worth knowing: where a company was not, or is no longer, entitled to a credit it has been paid, the amount is assessed and recovered as if it were unpaid tax.
That is worth planning for rather than worrying about. A claim you could defend today is a claim you can defend in two years, and the work involved is the same either way: real technical input, costs traced to records, a narrative that matches what actually happened. Our page on how likely an HMRC enquiry is sets out how routine checks have become.
If the credit is being withheld
A withheld credit is not always withheld in full. Where an enquiry has been opened without paying, HMRC’s own manual tells its officers to keep under review whether at least a partial payment can be made, and it recognises that for small start-ups the cash flow from a payable credit can decide whether the company survives. So where part of a claim is not in dispute, it can be worth asking for that part to be released while the rest is argued out. It is a request, not an entitlement, and the answer is often no — but the question costs nothing to ask and is rarely asked.
What an overclaim costs, beyond the repayment
Three things can follow. The relief itself is repayable. Late-payment interest is charged on top, running from the date the tax was due until it is paid, at HMRC’s published late-payment rate. And a penalty may be due, set by reference to your behaviour rather than the size of the error.
The behaviour distinctions matter more than the percentages, so take them in order. Where reasonable care was taken, no penalty arises at all — that is what the reasonable care standard is for, and it is why the care taken in preparing a claim is itself a form of protection. A careless error attracts a penalty of up to 30%, which can be reduced as far as nil where the disclosure is unprompted. Do not read that reduction across to the deliberate bands, which have floors: a deliberate error runs up to 70% and no lower than 20% on an unprompted disclosure or 35% on a prompted one, and a deliberate error that was concealed runs up to 100% with floors of 30% and 50%. Within each range, telling HMRC, helping it quantify the error and giving access to records all bring the figure down; obstruction pushes it the other way.
Read that against the shape of a typical problem claim. Very few companies set out to mislead. Rather more end up with an error they could not defend as careful — a cost category never tested against the legislation, a project narrative written by someone who never spoke to the engineers, a time apportionment nobody can now explain. That is the careless band, and it is entirely avoidable at the preparation stage.
If you find your own error
Tell HMRC. If the return can still be amended, amend it; where the amendment window has closed, there is a dedicated disclosure route for overclaimed R&D relief; and a deliberate overclaim goes down a different road again — the Contractual Disclosure Facility — where advice comes before anything is said. However it is done, an unprompted disclosure — one made when you have no reason to believe HMRC has discovered, or is about to discover, the error — materially reduces any penalty. The instinct to wait and hope is the expensive one, because the same error disclosed after HMRC opens an enquiry counts as prompted, and prompted disclosure earns far less.
If you are unsure whether there is a problem at all, find out before HMRC does. Our free claim review is a confidential second opinion on claims already filed, including claims prepared by someone else, and our HMRC enquiries guide explains what happens if a check does arrive.
There is no way to make an R&D claim enquiry-proof, and anyone offering you one is selling something. The dependable protection is duller and more effective: a claim prepared with care, on evidence, by people who understood the legislation before they filled in the form.
Sources
- CH81010: penalties for inaccuracies — a penalty is chargeable only where an inaccuracy is careless or deliberate; with reasonable care, none arises.
- CH81120: what reasonable care means — the standard itself.
- CH82470: penalty ranges — the ranges by behaviour, with the minima: careless up to 30% (nil unprompted, 15% prompted), deliberate up to 70% (20% and 35%), deliberate and concealed up to 100% (30% and 50%).
- FA 1998 Sch 18 para 24 — the twelve-month enquiry window, running from the day the return was delivered.
- FA 1998 Sch 18 para 41 and para 46 — discovery assessments where relief given is or has become excessive, and the four, six and twenty-year limits by behaviour.
- FA 1998 Sch 18 para 52 — subsection (2A): an R&D expenditure credit or R&D tax credit paid where the company was not, or is no longer, entitled to it is assessed and recovered as if it were unpaid tax.
- TMA 1970 s87A and HMRC interest rates for late and early payments — interest on overdue corporation tax from the date it became due, and the rate that applies.
- CIRD80520: examining a claim — where an enquiry is opened without payment, officers should keep under review whether at least a partial payment can be made.
- Tell HMRC if you’ve claimed too much R&D tax relief — the disclosure route for an overclaim you find yourself.
This page describes the rules as they stood at the review date above, as general information rather than advice on your circumstances. For how that distinction works, see our terms; for an answer on your own facts, talk to us.