R&D tax enquiries
R&D tax enquiries
The UK government encourages firms who undertake research and development work to claim any R&D tax reliefs to which they are entitled.
However, HMRC’s current estimate of the level of 'error and fraud' in R&D claims was £601m for 2023/24. Although this estimate is a fall in the amount lost to error and fraud compared to previous years because HMRC is checking more claims, R&D enquiry activity will not be slowing down any time soon.
It has never been more important to take preventative measures to ensure your claims are compliant and know how to prepare for, and manage, a claim that is being challenged.
HMRC undertakes this work in several ways:
- Checking 20% of claims before making payment to the claimant companies
- Urging companies to voluntarily disclose past errors in R&D claims – read more
- Reviewing amended claims or Corporation Tax returns to understand why the initial claim was ‘incorrect’
- Opening enquiries into claims, to challenge the amount claimed or whether the activities qualified for R&D at all
- Writing to companies suggesting that the claims may not be correct, via it’s Fraud Investigations Team
- Undertaking criminal investigations with a view to prosecution.
Helping you resolve HMRC enquiries
Our Tax Dispute Resolution (TDR) team is a national group of over 40 qualified and regulated tax professionals specialising in tax investigations and voluntary disclosure work. We offer a bespoke service with discreet and confidential small teams to run your case including partner-led advice. When it comes to R&D, COP9 and any other acronym in tax, we have years of experience!
We represent taxpayers with HMRC through the enquiry and disclosure process, often working alongside your regular accountant or other professionals such as lawyers. Learn more about how we support and guide taxpayers to reach agreement with HMRC on their R&D position here or call us on 0800 0113 451 .
Where can things go wrong with your R&D tax claim?
With so many rule changes in the past few years, it’s not surprising that R&D claims can go awry, but there are some common themes among the enquiries we help companies resolve. Proving how your project aims to achieve an ‘advance in science or technology’ is a perennial issue – with claimants often not understanding the rules or HMRC not understanding the technical issues. Then there are issues around grants and subsidies, ownership structures, externally provided workers and cost apportionments.
5 reasons to get expert support with R&D claim corrections
1. Supporting voluntary disclosures
If you realise mistakes were made in R&D claims for earlier years, then you will get peace of mind by telling HMRC about it before they ask questions about your company’s tax position. For example, if mistakes come to light when companies change advisers or go through the due diligence checks in the run up to selling a business or subsidiary, a TDR expert can advise on the most appropriate route for you to make a ‘disclosure’ to HMRC and guide you through the process. Depending on your company’s specific situation, it may be appropriate to do this using HMRC’s R&D Disclosure Service – but this will not always be the best route. In our experience, approaching HMRC voluntarily with expert support will give you the best chance of reducing any penalties that HMRC will seek to charge.
2. The technicalities
R&D rules are complicated – not only around what R&D is, but also what expenses can be legitimately considered in a claim for R&D tax relief. Our R&D team include industry experts who work closely with companies’ in-house professionals to make sure their claims are robust. Our TDR specialists are experienced at working collaboratively with our R&D experts to understand where the errors are in your claims and what the correct claim should be before explaining that analysis to HMRC.
3. Time limits and behaviours - do you need to go back 20 years on R&D enquiries?
UK tax legislation includes three main categories of behaviours: innocent, careless (similar to negligence) and deliberate behaviour (similar to fraud). These behaviours are linked to the three main time limitations to charge back taxes, either four, six or twenty years respectively. HMRC will focus on whether the taxpayer or the agent acting on their behalf carelessly or deliberately over-stated the R&D claim. Establishing which behaviour applies in your case and negotiating agreement with HMRC is a particularly complex area but applying the correct time limit is vital in limiting HMRC’s enquiry and it can also make a huge difference to amount of tax and late payment interest charged.
4. Tax-geared penalties
In every case where a R&D claim is found to be excessive, HMRC will automatically consider whether penalties are due, regardless of whether HMRC opens the enquiry or a voluntary disclosure is made (even through filing an amended tax return or claim). Penalties can be up to 100% of the incorrect tax but how much is charged may depend on factors, for example:
- Whether the company gave its adviser the relevant information to use when preparing the claim
- The extent to which it correctly relied on professional advice
- Whether the directors checked the claim as best as they could before it was made.
We can help make representations where the facts support the case that the penalties should be lower. Cooperation and full disclosure with HMRC through a professional disputes adviser will also help to reduce penalties.
5. Getting time to pay
If R&D claims were excessive, HMRC will want the company to repay any reliefs to which it was not entitled. In the current economic environment with its inherent cashflow pressures, that could cause practical difficulties for the business. We can help request a formal settlement incorporating a time to pay agreement so that the amount payable to HMRC can be settled in instalments acceptable to both parties. This avoids assessments (tax bills) being issued leading to HMRC’s Debt Management team formally pursuing payment in full within 30 days or debt enforcement action.
R&D Disputes Webinar
Our combined R&D and Dispute Resolution teams are helping many businesses to navigate this turbulent landscape. Watch the webinar to discoverthe key areas for consideration and how we can help, including:- The common areas of enquiry that our experts are seeing and how they are being approached
- The most efficient way to close a HMRC enquiry
- Preventative measures to ensure your claim is robust and enquiry ready.