R&D Tax Credits are a key part of the government’s strategy to support and reward innovation in the UK. It is a good way for companies to be rewarded for investing in improving existing products, inventing next generation products, improving processes and solving complex problems. Recently, however, you may have heard that HMRC has been taking longer than usual to pay out these credits, and they are also conducting random investigations into claims across a variety of sectors. In this blog post we’ll look at what this means for businesses who are claiming R&D tax credits.
Why is HMRC Doing This?
Due to some unscrupulous companies filing large numbers of fraudulent claims HMRC have increased the size of its investigation team. This indicates that they are taking a more active role in scrutinising claims to check the rules of the scheme are followed.
It is important to ensure your business meets all requirements when filing a claim for an R&D tax credit. Make sure you read all relevant information from HMRC carefully and thoroughly prior to making any claim or undertaking any activities which may impact your ability to make a valid claim in future years. Better still speak to an expert. By doing so, you can ensure you comply with all necessary requirements and minimise any potential delays or spot check investigations associated with claiming an R&D Tax Credit.
While we are not immune from HMRC investigations due to the randomness of case selection, we work with a tried and tested methodology, and we can reassure you that the claims you made with us are fully compliant and qualify within the rules of the scheme.
What Does This Mean for Businesses?
From what we understand, the majority of R&D tax credit claims will not be affected other than the pay-out being slower than usual.
An approach from HMRC about an R&D tax credit claim may consist of a ‘nudge’ letter. This is a standard letter asking if you are sure about your claim. No reply is necessary unless you are having second thoughts about a claim.
A random enquiry. This will ask for further details about your claim (often including much that has already been provided). The enquiry letter is fairly generic but demands a response which starts a discussion to and fro about the details of the claim. This can be a time-consuming process.
The worst outcome we have heard of is for HMRC to reject all or part of a claim and refuse – or reclaim – the tax relief. Of course, they do have powers to levy fines, but we have never come across this and it is clearly only used for fraudulent claims. Where a claim has been submitted in good faith, if – after discussion – HMRC do not accept its eligibility, they will adjust the tax payable, and then the enquiry is closed.
It is also worth noting that if you do find yourself under investigation by HMRC, then it is best practice to seek professional advice from an accountant or lawyer specialising in R&D Tax Credits as soon as possible.