HMRC has issued a warning to business owners against claiming tax deductions for hypothetical future penalties under the General Data Protection Regulation (GDPR), as reported by STEP.
The tax authority has identified that some tax agents have been advising companies to claim corporation tax refunds or reductions by setting aside funds as a precaution for potential future GDPR fines or civil claims for non-compliance. These set-aside amounts are being used to reduce taxable profits by recognizing a provision and corresponding expense.
In many cases, these agents argue that there is a high risk of GDPR penalties, suggesting a specific monetary amount to be set aside. Some agents even advise companies to amend previous tax returns retroactively to include this amount and claim a refund.
Some tax agents attempt to link GDPR-related claims with research and development (R&D) tax credits, inflating the R&D credit inappropriately. HMRC has cautioned businesses to be vigilant against this tactic, as it could result in tax errors, leading to additional tax liabilities, interest, and penalties, even if the R&D claim itself is valid.
HMRC states that these set-aside provisions contradict generally accepted accounting practice (GAAP) and that it will challenge any such claims. The authority is committed to tackling tax agents who encourage or facilitate false claims for expenses, rebates, or tax credits, and may impose penalties, suspend agents’ ability to act on behalf of clients, or refuse to deal with the agent altogether.
However, HMRC notes that some of these agents often disappear before any investigations are initiated. It remains unclear whether agents can be directly penalised for suggesting deductions that do not align with HMRC’s interpretation of GAAP.
