None at all, where you took reasonable care. That is the part most companies do not expect, so it is worth stating plainly: a penalty is chargeable only where an error was careless or deliberate. An honest mistake in a claim that was prepared properly carries no penalty, even where the relief itself has to be repaid.
Where a penalty does arise, the amount is set by your behaviour rather than by the size of the claim, then adjusted by what you do once the error is known. This page covers that calculation and what brings it down. Repaying the relief, the interest that runs alongside it and how far back HMRC can reach are separate questions, dealt with in can HMRC make me pay back an R&D tax credit?.
The behaviour bands
Four categories, in ascending order. The percentages below apply to the potential lost revenue — the extra amount payable once the error is put right, which is the overclaim rather than the claim:
- Reasonable care. No penalty.
- Careless. Up to 30%, and as low as nil where you disclose the error unprompted; 15% where the disclosure is prompted.
- Deliberate. Up to 70%, with a floor of 20% on an unprompted disclosure and 35% on a prompted one.
- Deliberate and concealed. Up to 100% of the overclaim, with floors of 30% and 50%.
Two features of that structure do most of the work. Only the careless band reaches nil, so a careless error found and reported before HMRC comes looking can end in no penalty. The deliberate bands have floors instead: no amount of cooperation takes a deliberate error below 20%. The distance between nil and a floor is the real difference between the categories, which is why the line HMRC draws between careless and deliberate matters more than the headline percentages do.
Those words carry narrower meanings than everyday use suggests. Careless describes how the claim was put together, not dishonesty. Deliberate means the inaccuracy was intended. Concealed adds steps taken to hide it. Companies that set out to mislead HMRC are rare; companies that end up with an error they cannot defend as careful are a good deal less rare, and that is the careless band.
What moves a penalty within its band
Conduct after the error surfaces. Telling HMRC about it, helping HMRC work out how much was overclaimed, and giving access to the records that let it check — do those promptly and the penalty moves towards the bottom of whichever range applies. Obstruct, delay, or answer selectively, and it moves the other way.
Timing decides which end of the range is even available. A disclosure is unprompted where you had no reason to believe HMRC had discovered the error or was about to. Once a compliance check is open, the same disclosure counts as prompted and earns considerably less: the careless floor moves from nil to 15%, and both deliberate floors rise sharply. Waiting to find out whether HMRC has noticed is therefore the most expensive option available.
If the error is one you have found yourself, the routes for telling HMRC differ by period and by behaviour, and the pay-back page sets them out.
Reasonable care is the only band you can choose in advance
Everything above happens after the fact. The band itself is decided long before, by how the claim was prepared.
Several of the defects that put a claim in the careless band are the same ones that lose enquiries: an advance framed as new to the company rather than new to its field; project boundaries drawn so wide that routine development is swept in with the qualifying work; a cost category never tested against the legislation; costs that do not reconcile to the accounts, or apportionments with no evidential basis; a technical narrative with no competent professional standing behind it. None of these is bad luck. Each is a decision taken months before HMRC looks at anything.
Reasonable care looks duller. Projects are selected against the statutory definition rather than the spend. The competent professional is interviewed and their reasoning written down. Costs are traced back to the accounts and the payroll. The Additional Information Form is written to answer the questions HMRC will ask. Prepared that way, the claim is likelier to survive a check — and the working file is itself the evidence that care was taken, which is the point at which the penalty question answers itself.
Where to go next
Our HMRC enquiries guide explains what a compliance check involves and how we defend claims; enquiry support is included as standard for claims we prepare. If a claim has already been filed and you would like an honest read on how it would hold up, our free claim review is a confidential second opinion, including on claims prepared by someone else. If an enquiry into a claim another adviser prepared has already arrived, HMRC enquiry defence sets out how we take that on as a standalone engagement.
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%).
- Finance Act 2007, Schedule 24 — the careless and deliberate penalty structure for errors; paragraph 3 defines the behaviour categories, and paragraph 5 sets the base the percentages apply to as the potential lost revenue.
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.