Research & Development (R&D) tax-credit claims are being subjected to increased scrutiny (and in our view, with good reason).
As a self-assessed benefit, HMRC have a duty to occasionally conduct compliance checks into R&D claims to ensure they are legitimate. These are known as ‘enquires’.
As part of an effort to reduce fraud and error in the incentives, HMRC enquiries are becoming increasingly common; and any business making an R&D tax-credit claim should be prepared to give evidence to support the qualifying expenditure within their submission.
Why do enquiries happen?
Abstract legislative terms such as the ‘resolution of scientific or technological uncertainty’ are purposefully broad – enabling innovation of all kinds across all sectors to be captured. Yet, this ambiguity also creates legislative ‘grey areas’ which have been variously misinterpreted (or, if you were feeling cynical, exploited) in recent years.
A HMRC enquiry may be a random spot-check; but all companies should be prepared for additional scrutiny to prove that their claim is technically accurate. The boundaries of your R&D – how you codify, qualify, and quantify your time and costs – are very much in the spotlight during an enquiry.
What is the enquiry process?
Your business will be notified with a letter from HMRC in the event of an impending enquiry. Correspondence with HMRC will then commence. This will include gathering any further information that is required to better understand the R&D claim. Depending on the outcome of the enquiry, your benefit may be reduced.
Enquiries can be issued at the point of claim submission, or at any time by HMRC. Commonly though, enquiries are issued after a claim has been paid and processed. HMRC call this operating on a ‘pay-now-process-later’ basis.
How will an enquiry effect my business?
If your claim has not been paid, enquiries typically result in your tax credit or repayment being delayed, giving inspectors time to better understand the submission and associated costs. More complex enquiries take years to be resolved and HMRC can (and will) impose penalties if they detect serious errors in a claim.
Tectona Tip: Don’t underestimate the time and resources needed to close an enquiry. We strongly advise you to work with a specialist adviser when submitting your claim whose fee includes supporting you through an enquiry.
How to make the most of your R&D tax claim
Most irregular claims are based on genuine mistakes and misunderstanding, rather than deliberate fraud; nevertheless, errors can result in serious consequences such as HMRC enquiries and, in some cases, penalties.
The purpose of an enquiry is to ensure the correct values have been accurately identified and that the right people in your business have – with whatever specialist support they choose to engage – made the correct assessments about their R&D expenditure.
As advisers, it’s the job of Kene Partners to make sure your claims are as accurate and as well-prepared for HMRC as they reasonably can be.
Update Sept 23: Especially as we now know there are 2 key process changes to be aware of. The first is the requirement to provide advance notification of your claim. The second is completion of an Additional Information Form. Talk to your specialist for more details.
If your claim does go to enquiry, support during this time is crucial for answering complex questions that will help demonstrate how your claim aligns with the nuances of the government guidelines. Without expert support, the enquiry process can be time-consuming (for you and your team) and technically demanding (again, for you and your team).
At Tectona, we see the best service that we can give our clients in this area is to introduce them to someone we know will give them support where and when they need it most.
We have partnered with Kene Partners who have the right team and the right expertise to deliver the right solution, on time, every time.
Kene Partners have the technical knowledge, expertise and the key relationships with HMRC to make sure you receive the full amount of benefit you are entitled to and to support you if you are the subject of an enquiry.
The benefit of this partnering relationship is that you can access a fast-track assessment of your potential to claim R&D and support during an enquiry.
What could your claim be worth?
To book your free consultation, visit Kene Partners.
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