R&D tax claim scheme is the most generous scheme to reward innovative businesses in the UK. With this scheme, businesses can reclaim their expenditure on qualifying research and development projects and get R&D incentives in the form of a reduction in corporation tax or cash refunds. Unfortunately, due to these highly valuable incentives number of fraudulent claims increased over the past few years. As a result, R&D tax claims have recently witnessed a significant increase in the HMRC R&D enquiry as a measure to minimise these falsified claims. According to our research, most companies hesitate to make an R&D tax claim due to the increased risk of HMRC R&D enquiry. Companies tend to dread the disrupting, daunting and time-consuming enquiry processes.
Taking into account the perceived risk of an enquiry, companies now need to be more careful while making an R&D tax claim to ensure their claims are accurate and complete in all terms. This blog will discuss HMRC R&D enquiry and tips to effectively handle enquiry in case your R&D tax claim comes under HMRC scrutiny.
Reasons for HMRC R&D Enquiry
HMRC R&D tax claim enquiry can happen for various reasons, but the most common reasons are listed below. To avoid enquiry, one should focus on the following requirements specifically to reduce the risk of an enquiry.
- Incomplete documentation and supporting data
- Inaccurate R&D expenditure calculations in the claim
- Including all the employees in the list of staff directly involved in the qualifying project
- Filing erroneous tax return
- Claiming with the wrong scheme
How to Handle HMRC R&D Enquiry?
So, for any reason, if HMRC decides to open a compliance check on your R&D tax claim, you receive a ‘compliance check letter’ from HMRC. This means HMRC requires further documents or information to verify your R&D tax claim for which they have opened an enquiry on it.
• Check Deadline
This may sound scary, but you don’t need to worry; there are ways to handle an enquiry minimising the risk of penalty or delay, so once you have the letter check the deadline given by HMRC, which is usually around five weeks.
• Get help from R&D tax experts
The next step is finding a reliable R&D tax expert with professional expertise and experience handling HMRC R&D enquiries. R&D tax claims are complicated, especially if one has no experience with claiming, so handling things with an expert can make things a lot easier for you. In addition, R&D tax experts usually have closely worked with HMRC and know how to prepare a robust response to an enquiry. Their degree of expertise is exactly what you need to defend HMRC enquiry without disruption to your business or further delay in the claim process.
• Carefully recheck your claim
There are many cases where a specific R&D project or cost fails to qualify for the claim, which results in R&D tax credits or relief reduction. One way to handle this is by carefully rechecking your claim; sometimes, there are other aspects which can increase the value of your claim to the same point as it was before the reduction.
• Ensure you meet the deadlines
One of the most important tips for handling enquiry is to take deadlines seriously! The biggest mistake companies make by ignoring deadlines; it can badly impact your enquiry resolution. If you fail to meet the deadline, inform HMRC beforehand and ask for an extension on the deadline date.
Possible Outcomes of HMRC R&D Tax Claim Enquiry
The HMRC R&D tax enquiry can have three possible outcomes:
• No Amendments required
If you successfully defend your R&D tax claim to HMRC, and if enquiry officers are satisfied that your claim is correct, then it will be processed without any need for amendments.
• Reduction in the R&D Tax Claim Value
If HMRC is unsatisfied with your claim, you might have to remove certain costs or projects that HMRC finds ineligible. This will result in a reduction of your R&D tax credits or R&D tax relief.
• R&D Claim Rejected
If HMRC finds your projects don’t meet the eligibility criteria, your R&D claim will be rejected, often leading to a penalty.
Therefore, you should be highly meticulous while tailoring a claim and ensure that it is as per HMRC guidelines to avoid such dreadful consequences. And in case your claim ends up under HMRC’s scrutiny, find an experienced R&D tax claim expert and focus on preparing a strong defending response to the enquiry.
How Can We Help You?
Square Finance has years of experience closely working with HMRC, tailoring successful claims and adeptly resolving HMRC enquiries. Contact us if you want to claim for the first time or need assistance handling compliance checks. Our team of R&D tax credits experts will handle your claim with minimum disruption to your work, ensuring your maximum benefit.