Navigating HMRC’s R&D crackdown

3 May 2024 / Insight posted in Enterprise series, Top tips

In our recent Enterprise Series webinar, our R&D and tax experts focused on how organisations have experienced increased scrutiny from HMRC when submitting R&D tax relief claims.

HMRC now require additional information to file R&D claims and are likely to initiate an enquiry to ensure the validity and accuracy of the claim before approving it.

Here are their top tips below on what businesses can be doing to navigate the process and avoid scrutiny.

Top tips on R&D relief

  • Innovation fuels the economy’s growth; R&D tax relief is HM Government’s flagship policy to encourage business innovation in the UK.
  • In response to increasing errors and abuse of this generous relief, HMRC are scrutinising claims more thoroughly. Companies need to adapt how they prepare claims to secure the incentives that help fund their innovation.
  • Do not underestimate the importance of understanding the recent rule changes and the effort to robustly prepare and support claims – dealing with HMRC’s compliance checks can be lengthy and time-consuming, as well as expensive.
  • Be familiar with the extensive guidance HMRC provides on preparing claims, or partner with a trusted advisor who can provide the specialist tax and technological support necessary to prepare R&D claims.
  • Engage with your key technical leadership. HMRC are placing increasing emphasis on the role of the ‘competent professional’ to identify eligible projects and determine when the R&D begins/ends. That competent professional must be familiar with the meaning of R&D for tax purposes; be aware of the current state of knowledge in the scientific/technical field as a whole; have accumulated experience and are familiar with the relevant scientific or technological principles involved.
  • Adopt a structured approach to claim preparation – identify the key information you already have – timesheets, project status reports etc. – that could support a claim.
  • Carefully identify project costs and track changes in the R&D regime as different cost categories come in and out of qualification. Ensure you keep records on the qualifying expenditure, how they have been assessed and the rationale supporting the assessment.
  • Prepare the mandatory submission – the ‘additional information form – and consider whether the value of providing a supplementary report, explaining the claim methodology or how particular risk points have been addressed, as these can help pre-empt compliance checks.
  • If HMRC issues a compliance check, do not panic. Seek input from a trusted adviser with R&D tax specialists and experience in successfully resolving tax disputes.

Is HMRC’s focus on historical claims or more recent claims?

There are three main ways that HMRC can review historical claims:

  • amend an obvious error in a return;
  • open an enquiry; or
  • where they wish to check an older claim, use their discovery powers.

Are HMRC checks randomly selected or do they need a reason to check the R&D claim in the tax return?

It is rare for HMRC to undertake a random enquiry. Most checks are due to the fact that HMRC have risk-assessed the tax return and consider that it is incorrect or that they do not believe that particular type of business would be undertaking R&D.

How can I find out what caused the enquiry?

HMRC has a statutory right to check the tax return (as long as they open it within the prescribed time frame) and it is important to provide the information that is requested, as long as it is reasonable and relevant.

If we disagree with HMRC, what are the options available to the business?

Where it is not possible to reach agreement, the company can ask for independent review by an officer not previously connected with the enquiry. If this is not successful, the business can ask for mediation, which is called ADR (Alternative Dispute Resolution) to see if it is possible to resolve the matter. Finally, if these options don’t work, the company can still ask an independent tribunal to consider the matter; however, this can be a slow process with delays of at least 18 months for cases to be heard.

If you have any questions or want to find out more about the topics discussed above, please contact our R&D tax team.

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