Have you or your client received a “correction" notice from HMRC removing an R&D tax relief claim…?

…If so, CIOT would like to hear from you. We are particularly interested if the letter from HMRC states that it is being issued under paragraph 16 Schedule 18 FA 1998 to correct/remove R&D tax relief claims, other than where the issue relates to a failure to submit an additional information form or claims notification.

Following public and member representations to CIOT, we raised concerns with HMRC about the appropriateness of HMRC using their power under paragraph 16 to correct/remove R&D claims from tax returns, and we also raised the issue of statutory references in these letters. While the first point remains open, we are pleased to report that HMRC have listened on the statutory references point. Any of these notices that you see going forward, should, for the definition of R&D for tax purposes in paragraph 16 letters, now refer to s1138 of the Corporation Taxes Act 2010. Please do let us know if you receive any letters that still refer to s1006 of the Income Tax Act 2007.

We explained to HMRC that while the previous incorrect statutory reference may seem like a small point, it added to the frustration around the conduct of R&D enquiries, and contributed to views that HMRC are acting unprofessionally, and without sufficient expertise.

This point was made in our second letter to HMRC about our concerns that HMRC’s handling of some R&D tax relief claims does not meet HMRC’s standards and commitments under their Charter. See R&D tax relief enquiries by ISBC Campaigns and Projects teams.

We welcome this small step forward and remain engaged with HMRC in addressing our concerns around the conduct of R&D enquiries. We are keen to understand more about the use of paragraph 16 to correct claims where HMRC believes there is clearly not R&D, based on the information provided to HMRC. We understand that HMRC are only using the power in a small number of cases but this approach would appear to considerably broaden the understood scope of paragraph 16, which is to correct ‘obvious errors’. HMRC have said that they are considering the outcomes of the use of paragraph 16 with respect to R&D, taking our concerns into account.

Moving forward, we would like to understand the circumstances in which HMRC have, and are continuing, to use paragraph 16 to correct/remove R&D tax relief claims - in circumstances other than those invoking the new power introduced by FA 2023 to reject R&D claims if there is a failure to submit an additional information form or claims notification. This will help inform our ongoing conversations around how the power is being used.

If you have any experience of paragraph 16 notices in these circumstances, or have received a paragraph 16 letter and are happy to share it with us, then please get in touch at technical.tax.org.uk or [email protected]. Similarly, if you are seeing any new approaches by HMRC to R&D claims, then do please let us know.