R&D tax relief : HMRC enquiries are on the rise

R&D tax relief : HMRC enquiries are on the rise_Whitings LLP 9th April 2023

As HMRC have experienced an increase in the number of SME Research & Development (R&D) tax relief claims being made by companies, so have they witnessed a number of fraudulent claims being made. To tackle this abuse, HMRC have established a tax credit compliance team to deal with R&D enquiries.


If a company receives an R&D enquiry, it will already have been risk assessed by HMRC. HMRC are under pressure to raise revenues, which could mean the enquiry is dragged out until they find an adjustment required to the claim and additional tax to pay by the company.


Once an enquiry has been opened, HMRC have powers to withhold any tax credit repayment due. Just because a company have received their repayment, does not mean that HMRC have agreed the R&D claim if the enquiry window is still open.


We are currently seeing R&D enquiries being opened by HMRC regarding whether the R&D activity is qualifying R&D for tax purposes. To ensure protracted correspondence isn’t received on this point it is essential to supply quality information on why the competent professional in your business believes the activities qualify for R&D.


Subsidised and contracted out R&D is still one of the main focuses of questions being raised by HMRC. There is caselaw on these points, however, it is a complex area of the legislation, and we therefore suggest professional advice is sought to ensure that all costs are correctly claimed.


What we are seeing from the HMRC R&D compliance team is very much template based and the questions are very generic as a result. This can lead to an abnormally high amount of queries for a relatively small claim. It is worth checking the information requested is reasonable compared to the size of the claim and if excessive or HMRC do not give enough time to respond, consider pushing back and challenging HMRC.


To avoid an HMRC enquiry it is good practice to provide a detailed breakdown of the R&D qualifying costs and a separate R&D report detailing the R&D activities and justifying the claim being made.


We assist many of our clients in preparing and submitting R&D claims to HMRC and dealing with enquiries on behalf of our clients. Please do contact us if you have any questions in relation to R&D claims or would like our assistance with preparing R&D claims or dealing with an enquiry.

Disclaimer - All information in this post was correct at time of writing.
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