HMRC and R&D tax enquiries
HMRC and R&D tax enquiries
Most companies making a research and development (R&D) tax relief claim are likely to get a HMRC compliance check at some stage over the years.
In the past,checks into research and development (R&D) tax relief claims were considered to be rare and usually linked to an error within a claim. However, since HMRC adopted a volume approach to compliance, in an attempt to tackle fraud these checks have increased substantially, even when it seems that the supporting evidence is strong, and the associated cost schedules are detailed and accurate.
It is also becoming a lot more common to see HMRC reject claims using its powers under Finance Act 1998 Schedule 18, paragraph 16. They do this without raising a compliance check, simply by amending the CT600 corporation tax return to remove the R&D claim.
Although the taxpayer can reinstate it by rejecting the amendment, a compliance check is likely to follow if they do. These are powers that, until recently, were not widely used by HMRC in the context of R&D tax relief.
Compliance checks now focus on validity of entire claim
In the past, HMRC enquiries may have asked whether a particular cost should be included in the claim for instance, but now HMRC usually looks to assess whether the company genuinely sought to advance overall knowledge or capability in a field of science or technology. In other words, they’re no longer challenging various aspects of the claim but instead the claim in its entirety.
Inconsistency from HMRC
There are guidelines available from the Department for Science, Innovation and Technology which define the eligibility criteria for an R&D claim and apply to each R&D tax relief scheme.
Despite this, the approach taken by HMRC during compliance checks seems to vary depending on which team is involved.
If you find yourself having to demonstrate R&D to HMRC, try to restate the case and provide new or more detailed information as clearly as you can, with references to the corresponding paragraphs in the guidelines.
The goal is to demonstrate that the conditions have been met and to ensure that the evidence presented to HMRC is clear, well structured, and directly answers their questions.
Next steps if a claim is rejected
In the event that a claim is rejected, the company can choose to appeal this decision via a statutory review. A positive result at that stage is far more likely if you have followed the advice above, which reflects best practice.
You can also maximise your chances of success by having all the facts and information collated and clearly presented before the statutory review. Whether it is commentary from the competent professional, documentation of activities, or a record of the mistakes made by HMRC, this evidence will play a crucial part in the successful outcome of a compliance check or statutory review.
Your accountant also plays an important role in assisting you with your R&D and any enquiries raised by HMRC – if you have submitted your own R&D claim and would like some assistance, our experienced team will be pleased to help.