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 works on a process now, check later basis: most claims are paid when they are filed, and questions come afterwards if they come at all. 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.
How long can HMRC come back?
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, provided it can show either careless or deliberate behaviour or that its officer could not reasonably have known of the excess from the information made available — 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: none where reasonable care was taken, up to 30% where the error was careless, and higher where it was deliberate. How the percentage is arrived at, and what brings it down, is set out in what penalties can HMRC charge if an R&D claim is wrong?.
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 what arrived was a standard HMRC letter rather than a notice of enquiry, what an HMRC nudge letter about R&D is, and what to do covers where that leaves a disclosure.
If you are unsure whether there is a problem at all, find out before HMRC does. If your claims have always been paid without questions and you have never had an independent view of them, silence is not evidence they were right. 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. Where a check has already arrived on a claim another adviser filed, HMRC enquiry defence is the standalone engagement that covers it.
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 — sub-paragraph (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.