Modernising the correction of errors: what the draft duty to correct means for R&D claimants

The technical consultation on HMRC's draft legislation, Modernising the correction of errors, closed on 7 September 2026. It was one of several HMRC consultations closing this week.

The draft Finance Bill clauses, published on 13 July 2026, do two things. They create a statutory duty on taxpayers to correct an error once they know about it, and they give HMRC a new power to issue a Customer Correction Notice.

Most people would agree that someone who finds out their tax return is wrong should tell HMRC. That is not particularly controversial. The problem is what the draft proposals attach to this. If you fail to correct it, the original error will be treated as deliberate, whatever the behaviour was at the time.

The draft also fails to say what "finding out" (or more precisely "become aware") means, which for R&D claims, where professionals often disagree on legislative interpretation, is an important question.

Adviser Radar responded to the consultation. This article explains what the draft does, why it matters to R&D claimants and what we asked HMRC to reconsider.

What the draft does

The new Schedule 24A to Finance Act 2007 has two parts.

Part 1, the duty to correct. If a taxpayer "becomes aware" of an inaccuracy in a return or claim, and it can still be corrected, they must correct it or tell HMRC. If they do neither, paragraph 1(4) says the inaccuracy "is to be treated as deliberate".

Part 2, the Customer Correction Notice. Where HMRC has "reason to suspect" an inaccuracy it can issue a notice stating the inaccuracy or "kind of inaccuracy". The taxpayer must correct or explain why there is nothing to correct. If they do not, paragraph 2(3) presumes carelessness unless they can satisfy HMRC or a tribunal that they took reasonable care.

There has never been a statutory duty to correct. There has always been a consequence for not doing so. Schedule 24 paragraph 3(2) says an innocent error, later discovered and not reported, is treated as careless. Section 118(6) TMA 1970 says the same for time limits.

The draft deletes paragraph 3(2) and changes "carelessly" in section 118(6) to "deliberately". Essentially the same conduct but a new label.

What deliberate means for a small company

A careless penalty is up to 30% of the tax. A deliberate one is up to 70%, or 100% if concealed.

Section 94 Finance Act 2009 allows HMRC to publish the details of taxpayers who incur deliberate penalties above a threshold. Schedule 24 paragraph 19 lets HMRC transfer a company's deliberate penalty to a director.

A deliberate loss of tax can be assessed for 20 years rather than six.

The changes mean that an uncorrected error on an R&D claim that is still within time to be assessed could become a deliberate error, with a potential twenty-year assessment window, if a director ever "becomes aware" of it.

When does a taxpayer "become aware"?

The draft does not say exactly how "become aware" will be defined. The provisions it replaces previously used "discovers" and the amended section 118(6) still does.

For R&D tax relief this matters. Whether a project qualifies is a judgement about whether there was an advance in science or technology that a competent professional could not readily achieve and appropriate scientific or technological uncertainty. HMRC's own manual, CIRD81300, says:

There may be differences of opinion between competent professionals in a particular field. Where the view taken is a legitimate one, and it has been reached by a competent professional properly exercising their expert judgement then it should normally be accepted.

A taxpayer told by a second adviser "we would not have claimed that" has heard an opinion, not discovered an error. The draft does not distinguish between them.

It is hard to prove you did not know something, so HMRC should have to prove awareness. The draft also allows no time between becoming aware and having to correct. An R&D claim cannot be amended in an afternoon.

Does changing your R&D adviser create a penalty risk?

On the draft as it is written, it potentially could.

Today, if a new adviser reviews an old claim and disagrees with it, the worst outcome is careless treatment if the matter goes unreported. Under the draft, that conversation could make the taxpayer "aware", and doing nothing makes any error in the original claim deliberate.

Meanwhile, a company that never changes adviser, never commissions a review and never looks at its old claims cannot become aware of anything. Its maximum exposure stays at careless.

A regime intended to get errors corrected should not make the more diligent taxpayer who double-checks worse off than the one who does not. We have asked HMRC to confirm in the legislation that a second opinion or a change of adviser does not, by itself, amount to "awareness".

The draft also does not say whose knowledge counts in a company, nor whether an adviser's knowledge is attributed to the client.

The Customer Correction Notice

The draft legislation also introduces a new ability for HMRC to issue a Customer Correction Notice (CCN) requiring the person to either correct an inaccuracy or explain why there is none. This is a new separate power. HMRC can issue a CCN where it has reason to suspect an inaccuracy, whether or not the taxpayer knows anything about it. The taxpayer must correct the return or explain why there is nothing to correct. If they do neither, the inaccuracy is automatically presumed to have been at least "careless".

HMRC has presented the new CCN as being aimed at correcting straightforward and obviously incorrect compliance issues. The draft clauses contain no such limit. Any return covered by Schedule 24 is in scope, including a corporation tax return with an R&D claim in it.

The threshold for HMRC issuing a CCN will be "reason to suspect". The existing correction power for corporation tax, at Schedule 18 paragraph 16, requires a "reason to believe" based on the information available. The lower threshold of "suspect" is a weaker evidential threshold.

The notice need only name a "kind of inaccuracy". A letter saying an R&D claim may contain non-qualifying expenditure would do. In theory, HMRC will need no other reason and no other evidence of this.

The taxpayer must "explain why" there is no inaccuracy but the explanatory note uses the term "demonstrate". Those are different tests, and it is HMRC deciding whether the explanation given is good enough.

There is no right of appeal against the notice itself, no minimum response period, no obligation on HMRC to reply within any time and nothing to stop a second notice.

Paragraph 1(1)(c) says awareness can arise "by virtue of a correction notice". If a notice makes you aware, ignoring it is arguably deliberate, not careless. A taxpayer who opens the CCN letter and becomes aware of an error is potentially treated worse than one who never opens it. The same HMRC argument of making taxpayers aware could apply to nudge and One to Many campaign letters, of which R&D claimants have received a great many.

Why HMRC's record with R&D corrections matters

This is not HMRC's first correction power that could be aimed at R&D.

In 2022, the Fraud Investigation Service (FIS) began writing to R&D claimants stating that the claim had "triggered an alert on our systems" which "caused HMRC to believe that you have fraudulently claimed money to which you are not entitled". Where no response was received, Schedule 18 paragraph 16 was used to remove the claim entirely. All this with no formal enquiry being opened. FIS later changed the wording of these letters to read "caused HMRC to suspect that you have fraudulently claimed relief to which you are not entitled" but the same rejection process applied if there was no response.

In August 2026 HMRC confirmed to Adviser Radar, under the Freedom of Information Act, that the FIS R&D Anti-Abuse Unit does not charge Schedule 24 penalties where claims are corrected in this way.

That is not surprising. A behavioural penalty requires HMRC to ask questions to establish what the taxpayer did. The First-tier Tribunal said so in H&H Contract Scaffolding [2024] UKFTT 151 (TC). Removing a claim by correction asks no questions.

This means that the FIS R&D correction route produced no penalties, even though that campaign was prompted by an organised attack on the R&D system and was designed to tackle some of the most egregious R&D behaviour HMRC had seen in years. It also swept up a good many genuine claimants as collateral damage in the process.

The draft legislation addresses that gap by presuming the behaviour is at least careless in these circumstances, instead of establishing it. We suspect that is part of the reason this legislation is being introduced. We do not think that is the right answer. The statutory enquiry framework already exists and generally works well. It contains important safeguards for taxpayers and also allows HMRC to apply severe penalties where warranted. A new power is a sticking plaster for a process that bypassed the one already there.

What is missing

Corporation tax time limits. The only time-limit change is to section 118(6) TMA, which governs income tax. Schedule 18 paragraph 46 FA 1998, which governs corporation tax, is untouched. The policy paper refers to "related provisions" that have not been published. Until they are, nobody knows with certainty what the draft does to the assessment window for an R&D claim.

The impact assessment. The impact is stated as "negligible" on "an unknown number of businesses". However, we suspect the impact could be significant. The Exchequer table is also empty. For a measure that works through the penalty system, it is surprising that there is no estimate of the penalties.

What the previous 2024 consultation asked for. This draft legislation arises from a 2024 consultation on new ways to tackle non-compliance. Almost every respondent to that consultation wanted HMRC to be required to explain why a correction was being made. Many wanted a "reason to believe" threshold, a right of appeal and 60 to 90 days to respond. Several said disagreement should go to enquiry. None of that is in the draft. The one thing nobody proposed, deliberate treatment for a later failure, is.

What Adviser Radar asked HMRC to change

1. Define "becomes aware" as knowledge beyond reasonable doubt that the return is wrong, and put the burden of proving it on HMRC.
2. State that a contrary professional opinion, a second opinion or a change of adviser does not of itself amount to awareness.
3. Include an attribution rule for companies.
4. State whether a Customer Correction Notice, or a One to Many letter, constitutes awareness.
5. Make seeking and reasonably relying on competent professional advice a reasonable step.
6. Remove the deliberate deeming. If a sanction for knowingly sitting on an error is wanted, legislate a separate failure-to-correct penalty. As a minimum, make it rebuttable.
7. Confine notices to verifiable inaccuracies, require "reason to believe" and require the notice to state the specific inaccuracy, the information relied on and the tax at stake.
8. Treat a genuine explanation as compliance. If HMRC disagrees, the next step is an enquiry.
9. Publish the corporation tax provisions before the policy is finalised.

What happens next

The clauses are intended for the 2026-27 Finance Bill and will take effect from an appointed day. HMRC will publish a summary of responses in due course.

There is nothing a claimant needs to do now. But it is worth knowing which historic R&D claims exist, who prepared them and on what basis, because under this draft the answer to "were you aware?" may one day depend on that.