HMRC enquiries into R&D Tax Credits: How to avoid them

So you’ve put together an amazing R&D Tax Credits application. Everything’s complete and you’re pretty confident HMRC will be only too happy to oblige. But how can you really know for sure before hitting submit?

The application process for R&D tax relief is notoriously tricky and every project is different. So even the most experienced of claimers are prone to making a mistake.

Unfortunately, no matter how innocent an error is, HMRC are bound to pick up on it which could lead to a wider review of your tax affairs, or even a hefty fine. Not good.

The good news is there are several steps you can take to avoid an HMRC enquiry. Here we take a look.

First off, what is an HMRC enquiry?

The R&D Tax Credits scheme is rising in popularity, with latest government statistics showing 85,900 UK claims made in the year ending March 2020. This is an increase of 16% from the previous year. Of those, you can pretty much guarantee some will have been picked out for further investigation.

Sometimes HMRC will simply ask for additional information to clarify anything it’s not clear on. Other times it will drill a little deeper.

The key aim in carrying out such checks is primarily to prevent overclaiming and fraud, which isn’t really surprising these days when government funding is limited. HMRC has even been known to open enquiries simply to test their own policies and procedures.

Once you’ve submitted your R&D tax relief claim, HMRC will generally contact you in writing if they have any questions or issues.

Why might HMRC open an enquiry?

The reasons behind HMRC opening enquiries can vary massively. Sometimes it’s to do with your company’s set up, your documentation or a change in your circumstances for instance. Or it could be something completely different.

HMRC may also have some questions about the type of R&D work your company has undertaken, perhaps around the technology you use or the industry you work in. It could even just be a spot check.

Other common reasons include:

• Your claim value has suddenly shot up, particularly if you have previous claims to compare to (let’s face it, a new SME that suddenly wants to claim several million in R&D tax relief is going to stick out somewhat)
• HMRC believes there’s an inconsistency in your claim, for example something is inaccurate or doesn’t give the whole picture
• There are questions around your tax return. Although tax returns are not specifically related to R&D Tax Credits, for completeness HMRC often wants to look at your return in relation to your R&D claim
• HMRC has chosen a particular industry or type of technology to focus their enquiries on at a certain time. In other words, it’s nothing you’ve done wrong, it’s just a general industry check.

This is why our team of R&D tax specialists take creating your R&D Tax Credit claim seriously. We understand that HMRC enquiries can be stressful (not to mention expensive) so we make sure your application is as well presented and thorough as it can be. This means that right from the beginning, you can submit your claim confident in the knowledge that an HMRC enquiry about anything specific to you is highly unlikely.

How can HMRC enquiries be avoided?

HMRC insists that all R&D Tax Credit claims are well-prepared. All questions should be answered fully and accurately, backed up with all the right supporting evidence and a squeaky clean R&D technical report. Only then are you likely to dodge unwanted HMRC attention.

HMRC reserves the right to impose penalties of up to 100% of your claim’s value if it deems your preparation process to have been negligent. A helpful attitude and proactive cooperation during an enquiry will go a long way here too.

At Myriad Associates we take the stress out of applying for R&D tax relief by making the whole process simple. Our team consists of a range of R&D tax specialists who will take the time to understand the mechanics of your business, your general tax affairs and your R&D work. We will then complete your claim for you, so you can rest assured everything is covered.

Still not sure? Check out our recent blog to find out more: Why Reach Out To An R&D Tax And Funding Consultancy?

Top tips to reduce the chance of an R&D Tax Credit enquiry

• Understand how to make your methodology clear to HMRC inspectors. Don’t forget, they’re looking at thousands of R&D tax relief claims all the time, so make it really obvious why your project deserves the award
• Ensure your record-keeping is completely up-to-date and transparent. This will allow you to more accurately relate the costs to your R&D activities
• The person in your company who had the most input in overseeing the R&D project should be the one who heads up the claim. This may not necessarily be a senior or general manager
• In your R&D technical report, make sure you have demonstrated an understanding of the guidelines around R&D and how they apply to your claim.

Do you need help with an HMRC enquiry?

Has your R&D tax relief claim attracted the attention of HMRC? Don’t panic.

Enquiries into R&D tax relief claims by HMRC are on the rise. Our highly-qualified team will provide the utmost support to secure a beneficial resolution for your HMRC R&D enquiry, so that you can rest assured knowing your business is in safe hands.

We are well equipped to offer actionable advice on any R&D tax relief enquiries made by HMRC as well as provide proactive reviews that can help ensure complete peace of mind during these uncertain times.

If you’ve been contacted by HMRC about your R&D Tax Credit claim, or you’d simply like to know more, please do get in touch using our contact form or call our friendly team on 0207 118 6045.