Why do HMRC enquire into a R&D tax relief claim?
Concern over abuse and boundary-pushing involving R&D tax relief claims has grown in recent years. Some advisers, many with no background in tax, take advantage of companies who are unfamiliar with tax legislation. This exposes claimant companies to significant tax risks - including long and protracted enquiries which may result in substantial repayments of tax. On top of this, HMRC have powers to impose significant penalties of up to 100% of the underpaid tax.
There’s no doubt about it – enquiries are on the increase where R&D tax claims are concerned. HMRC now have additional resources and their ‘enabling’ approach of yesteryear is a distant memory. Claims are scrutinised more than ever and HMRC are increasingly bullish in their approach after several recent First-Tier Tribunal hearings went the way of HMRC.
HMRC may open an enquiry into an R&D claim for several reasons. The most common in our experience are:
- The claim methodology – HMRC are increasingly interested in who was involved in creating the R&D claim, how was the claim put together, and whether or not the company read the BEIS guidelines, prior to making a claim.
- The R&D projects - HMRC may require further evidence that the R&D activity being undertaken meets the qualifying criteria for R&D tax relief.
- The correct R&D scheme - HMRC may require further evidence that the company meets the SME definition. The SME scheme is more generous that the RDEC scheme therefore it’s essential to make the right call on which scheme to claim under.
- The competent professional – HMRC are increasingly interested in who leads the R&D work on a given project and who comes up with the solutions. They often seek assurance that the people responsible are ‘competent professionals’.
- The basis of a claim – In the past 18 months, HMRC have opened a number of enquiries based on their belief that the R&D work was subcontracted to the claimant company. Similar enquiries have been opened on the basis the work was also subsidised by the customer.
- The qualifying costs - HMRC regularly open enquiries as they suspect that incorrect categories of expenditure have been claimed.
- Subsidies – Many companies are in receipt of notified state aids in the form of government grants. These can impact an R&D tax relief claim and can be the focus of HMRC questions.
Our 3Es philosophy – Expertise, Ethics and Engagement – really come into play where HMRC enquiries are concerned. Our expertise and ethics mean that your claim will never be artificially inflated. It will be robustly prepared and maximised within the boundaries of tax legislation. This greatly reduces the risk of enquiry, meaning you (and us!) can sleep soundly at night.
Finding out your claim is under enquiry can be unsettling and time-consuming, even if you have all the right reasons for submitting it.
We have years of experience in dealing with R&D tax relief enquiries and regularly give accountants and their clients peace of mind, knowing that their claim will be handled by advisers with years of experience and know-how. We take care of the entire process, guiding you through every step of the way helping to bring the enquiry to the correct conclusion.
Some advisers claim a 100% success rate where claims are concerned. When you’ve been in the game as long as we have, it’s impossible not to attract an enquiry at some point. So we don’t claim a 100% success rate. Anyone can claim this, without it being true. We’re just comfortable knowing our vast experience counts for more than any arbitrary and unproven statistics.
If you have an enquiry, we’re here to guide you through it. We’ll help you to bring your enquiry to the right and fair conclusion by liaising openly and practically with HMRC.
If you wish to discuss an enquiry, please do not hesitate to contact us at email@example.com
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