R&D tax relief
Can a director be personally liable for a wrong R&D claim?
The claim is the company's, and so, in most cases, is the penalty. But UK tax law has a specific, narrower power that lets HMRC transfer some or all of that penalty onto a named director personally. It doesn't apply to every wrong claim, so the useful thing is knowing exactly where the line sits, rather than assuming either that nothing personal can happen, or that everything can.
An inaccurate R&D claim can carry a financial penalty under Schedule 24 of the Finance Act 2007, the same regime that applies to any inaccurate return across UK tax, not something R&D-specific. That penalty is the company's. Separately, and only in narrower circumstances, HMRC can make a named director, manager or company secretary personally liable for some or all of it. The two questions, company exposure and personal exposure, have different answers, so this page takes them one at a time.
The company's exposure first
What the company itself can be charged
Schedule 24 sets the penalty by behaviour, as a percentage of the tax understated (HMRC calls this the "potential lost revenue"): up to 30% for a careless inaccuracy, up to 70% for a deliberate inaccuracy that isn't concealed, and up to 100% where it's deliberate and concealed. These are maximums. HMRC reduces the percentage for the quality of disclosure, and the reduction is considerably more generous where the company discloses before HMRC has any reason to believe it's about to find the error itself: for a careless inaccuracy, an unprompted, high-quality disclosure can bring the penalty down to 0%, where the same disclosure only after HMRC has raised it caps the reduction at 15%. This is the legal basis for the general point made elsewhere on this site that correcting an error yourself is treated more favourably than waiting to be found (see you think a past claim was wrong).
Where it can become personal
The officer-liability power, and its actual limits
Schedule 24 also gives HMRC a separate power (Part 4, "companies: officers' liability") to make a named officer of the company, meaning a director, a shadow director, a manager or a secretary, personally liable for some or all of the company's penalty, up to 100% of it. HMRC does this by written notice to that individual. This power has two real limits that are easy to flatten in a casual summary, so it's precision that matters here:
- It only applies to a deliberate inaccuracy. A careless mistake, however costly, stays a company liability. The officer-liability power is not available at all for a careless-only penalty.
- It only applies where the inaccuracy is attributable to that specific officer. HMRC has to show the deliberate act was that individual's doing, not simply that they held the title of director while it happened. A director with no involvement in preparing or approving the claim is a materially different position from one who knowingly signed off inflated costs.
Worth being direct about: HMRC doesn't automatically win a personal liability notice on appeal. Under Schedule 24, the burden of proof sits with HMRC to show both the deliberate behaviour and that it's genuinely attributable to the named officer, not with the officer to disprove it. A notice being issued and a notice being upheld on appeal are two different things, and appealing one is a real, used route, not a formality.
What this means in practice
Where the real risk actually sits
In our experience, most R&D claims that turn out to be wrong sit in careless territory: the technical narrative was thin, a cost was mis-scoped, or a genuine judgement call didn't survive scrutiny, none of which involves anyone knowingly approving something they understood to be false. That kind of error stays a company liability at worst. Personal exposure under this power is a live question specifically where a director knowingly approved a claim they understood to be inflated or fabricated, not where a claim was optimistic, poorly evidenced, or prepared by an adviser who got it wrong. If there's a real question over which side of that line a specific claim sits, that's a job for independent advice on the facts, not this page (see the adviser register).
Decision helper
Sources
Penalty percentages and the disclosure-quality reduction: Schedule 24, Finance Act 2007 (see legislation.gov.uk) and HMRC's Compliance Handbook, CH82420. The officer-liability power: Schedule 24, Part 4, paragraph 19.
Alternatives and limitations
If HMRC has already opened a compliance check, the immediate next step is understanding that process, not this page: see an HMRC enquiry has opened. If nothing has been raised yet but you suspect a past claim was wrong, correcting it proactively changes the position described here: see you think a past claim was wrong.
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Adam Parker
Founder of Muswell Rose Consulting Ltd, which trades as Established Finance · former Managing Director of Penny, an invoice finance business, working in mortgages, commercial finance and fintech lending since 2010 (career history).
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Practical questions
Before you get in touch
Can a director be personally liable for a wrong R&D claim?
Only where the inaccuracy is deliberate, not merely careless, and HMRC can show it's attributable to that individual. A careless error stays a company liability.
Does the company being unable to pay make a director liable?
Not on its own. HMRC's officer-liability power under Schedule 24 depends on the deliberate/attributable test, not on whether the company can pay.
What is a personal liability notice?
A written notice HMRC issues to a named company officer, transferring some or all of a company's penalty for a deliberate inaccuracy onto that individual personally.
What information do I need?
To start, just a description of what’s actually happening in the business. If it progresses, the provider will ask for the usual things: recent accounts, a sense of turnover and trading history, and details of the specific need.