HMRC’s changing attitude to R&D tax credit enquiries
HMRC have begun to implement their new approach to investigating Research and Development (R&D) tax credit claims to eliminate ‘erroneous submission filed by unscrupulous advisers’. According to research, investigations into R&D claims have risen 900% from levels seen in 2019, with an estimated 1 in 25 R&D submissions currently being targeted.
Following HMRC’s annual report from December 2022, it was estimated that £469 million was lost through fraud and error in its two R&D schemes in the 2021/22 tax year – the equivalent of 4.9% of corporate tax R&D relief.
The government responded to the data by increasing resources for HMRC to improve compliance, with the specialist R&D team focused on compliance against SMEs doubling in size in recent months.
What does a HMRC R&D review involve?
HMRC are taking a hard stance on the review of R&D claims and are looking for strong evidence of advancements in technology in the claimant’s industry and detailed information on the competent professionals involved in the Research & Development project.
A HMRC review will initially look at the businesses specific projects and whether they believe these qualify for R&D tax credits. If HMRC are satisfied that the projects qualify, they then move on to check the costings.
Should HMRC issue a pre-decision letter stating that they do not believe the claim qualifies, then it can be very difficult to shift them from this stance, and it is unlikely that the claim would go on to be agreed. If you decide to withdraw the claim at this point, penalties may be issued.
What do I need to do to ensure an R&D claim is successful?
Ultimately, you need to be very confident that an R&D project meets the BEIS definitions of R&D as set out in the HMRC guidance before the claim is submitted. Given the hard stance HMRC are taking on the review of R&D claims, we would recommend speaking to a specialist R&D tax credit adviser to guide you through the process and ensure you clearly understand the criteria and the quality of information that will need to be supplied.
Get in touch
If you would like to discuss your R&D tax credit claim in more detail, or have any questions about a claim you’ve made in the past five years which may not perform well against HMRC scrutiny, get in touch with one of our expert R&D tax advisers by emailing firstname.lastname@example.org.