A claim is a statement to the tax authority that the board stands behind. This module sets out what goes wrong when that statement is weaker than it looks, in general terms and in the words each country's rules use. It then gives directors a governance routine: who owns the claim, what the board sees before filing, and the questions to ask each year.
What this module covers
- The four costs of an over-claimed benefit.
- How long the exposure lasts and how penalties scale, country by country.
- Who owns the claim and what each owner produces.
- What the board should see before filing, and the questions to ask each year.
The four costs of an over-claim
An over-claimed benefit is a liability with a delay, and it costs four things.
- Repayment with interest. An over-claimed credit must be repaid, usually with interest. In Ireland, where a credit is found to have been overclaimed, the excess is recovered as corporation tax with interest at the statutory daily rate from the date the credit was paid or offset.
- Penalties. Penalties may apply where a claim was careless or worse. Using an advisor does not, by itself, protect the company: it remains responsible for its return. The United Kingdom says so directly: a company cannot show reasonable care merely by appointing an agent; it must take reasonable steps to check the return.
- Management time. A review consumes months of a finance lead's attention and days of technical staff time. Reviewers ask for records made at the time and may want to meet the people who did the work.
- Reputation. Boards, auditors and acquirers ask about tax positions, and an open dispute has to be answered in due diligence. Some countries put a name on the claim: the United Kingdom requires the details of the senior officer of the company responsible for it.
How long the exposure lasts and how penalties scale
Two patterns hold everywhere: a claim can be revisited for years, longer where the inaccuracy was careless or deliberate, and penalties scale with behaviour.
| Country | Period for revisiting a claim | Penalties recorded |
|---|---|---|
| United States | The general period for assessment is three years after the return is filed | The accuracy-related penalty is 20 percent of the portion of the underpayment attributable to negligence, disregard of rules or a substantial understatement |
| United Kingdom | Discovery assessments may be made within 4 years of the end of the accounting period, extended to 6 years for careless and 20 years for deliberate inaccuracies | Up to 30 percent of the potential lost revenue for careless, 70 percent for deliberate and 100 percent for deliberate and concealed inaccuracies, with reductions for unprompted and prompted disclosure |
| Ireland | Revenue may make or amend an assessment within 4 years after the end of the chargeable period in which the return is delivered, with no time limit where the return was not full and true | Penalties for a deliberate or careless default are 100 percent, 40 percent or 20 percent of the tax, reduced for cooperation and for prompted or unprompted qualifying disclosures |
| Canada | The normal reassessment period is three years after the date of the original notice of assessment for a CCPC and four years for other corporations, extended where there is misrepresentation attributable to neglect, carelessness or wilful default | 50 percent of the understatement of tax or overstatement of credits for a false statement or omission made knowingly or under circumstances amounting to gross negligence |
| Australia | The Commissioner may amend an assessment within 2 years for a small business entity or 4 years for other taxpayers | 25 percent of the shortfall for failure to take reasonable care, 50 percent for recklessness and 75 percent for intentional disregard, with reductions for voluntary disclosure |
| New Zealand | The Commissioner may amend an assessment within 4 years after the end of the tax year in which the return was filed | Shortfall penalties are 20 percent for not taking reasonable care, 20 percent for an unacceptable tax position, 40 percent for gross carelessness, 100 percent for an abusive tax position and 150 percent for evasion, reduced for voluntary disclosure |
| Singapore | IRAS may make an additional assessment within 4 years after the end of the Year of Assessment, with no time limit in cases of fraud or wilful default | An incorrect return made without reasonable excuse is liable to a penalty of up to 200 percent of the tax undercharged; wilful evasion attracts a penalty of up to 400 percent and imprisonment |
Who should own the claim
One person owns the claim and answers for it to the board, usually the finance director or CFO. The technical lead owns the project list and the narrative, because only the people who did the work can say where the uncertainty lay and when it was resolved. Finance owns the cost schedule and its reconciliation to the ledger. The advisor supports all three and owns none of them: the company signs the return.
| Artefact | Owner | When |
|---|---|---|
| Project list, with an include or exclude decision and the reason for each | Technical lead | Project start; reviewed quarterly |
| Records made at the time: time records, test results, decisions | Project leads | Continuously, in the tools the team uses |
| Calendar of registration, approval or notification steps for each country claimed in | Finance lead | Year start; checked monthly |
| Cost schedule by category, reconciled to the ledger, with the apportionment basis | Finance lead | Year end, before the narrative is final |
| Technical narrative, approved in writing by the technical lead | Technical lead | Before filing |
| Advisor engagement terms, including fee and review support | Claim owner | At engagement; reviewed annually |
| Board paper | Claim owner | Before filing |
| Copy of everything filed, with working papers | Finance lead | At filing; kept for the retention period |
What the board should see before filing
One paper, two pages, before the claim is filed:
- The project list, with the decision and reason for each, and who made it.
- For the largest projects, where the technical uncertainty started and where the work to resolve it ended.
- Eligible costs by category, reconciled to the ledger, with the apportionment basis for staff time and grants netted off.
- The benefit, the method or election chosen, the cash timing, and the status of any registration, approval or notification step.
- The advisor's fee in money, and what happens to it if the claim is reduced.
- The exposure: what would be repaid, with interest and a possible penalty, if the largest project were excluded.
- Who is named on the claim as responsible, and as advisor where the tax authority asks.
If any line is blank, the claim is not ready.
The questions to ask each year
Directors do not need to understand the schemes in detail. They need to ask, once a year: who owns this claim; which projects are in it and why; who reviewed the technical content; how the advisor is paid; what our exposure is if it is reviewed; and what changed in the rules since last year. Clear answers mean the claim is probably sound; silence means it probably is not.
Illustrative example
Illustrative example. Harbour Robotics Ltd, a hypothetical company, claims on 1,000,000 of eligible costs and receives a benefit of 150,000 at that country's rate. Later a reviewer asks for the records behind the largest project. The company can show test results and time records for the first phase, but the last 300,000 of costs relate to work after the technical uncertainty had been resolved. That 300,000 is excluded. The company repays 45,000 with interest and, because nobody drew the boundary at the time, it struggles to show that it took reasonable care, so a penalty at that country's rate is in play. Had the technical lead drawn the boundary at the start and recorded it, the claim would have been 700,000 of costs and 105,000 of benefit: smaller, kept, and never discussed at a board meeting again.
Across the seven countries
| Country | Who reviews and how claims are chosen |
|---|---|
| United States | Claims can be selected for examination through the IRS's normal return selection processes |
| United Kingdom | HMRC selects claims for compliance checks on a risk basis and runs a mandatory random enquiry programme |
| Ireland | Revenue selects claims for compliance interventions on a risk basis and may consult an expert in the field |
| Canada | The CRA risk-assesses each claim on receipt and either accepts it as filed or selects it for review |
| Australia | The department selects registrations for examination on a risk basis; registration is not a decision that the activities are eligible |
| New Zealand | Inland Revenue selects claims for review on a risk basis; a general approval binds the Commissioner only for activities performed as described in the application |
| Singapore | IRAS selects companies for audit on a risk basis and may seek the views of technical experts |
Where to go next
Self-check questions
Answer each question, then open it to compare.
The company used a reputable advisor. Does that protect it from penalties if the claim is found to have been careless?
Name the four costs of an over-claimed benefit.
Who should own the project list and the technical narrative, and why not the advisor?
What should the board paper contain before the claim is filed?
How long can the tax authority revisit a claim? Give one country and what extends the period.
Official sources
- 26 U.S. Code section 6662, Imposition of accuracy-related penalty on underpaymentsLegal Information Institute, Cornell Law School
- Finance Act 2007, Schedule 24, Penalties for errorslegislation.gov.uk
- Code of Practice for Revenue Compliance InterventionsRevenue Commissioners
- Income Tax Act, section 163, PenaltiesJustice Laws Website, Government of Canada
- Taxation Administration Act 1953, Schedule 1, Division 284Federal Register of Legislation
- Tax Administration Act 1994, sections 141A to 141KNew Zealand Legislation
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Educational content only, not tax advice. See the disclaimer.