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HMRC enquiries into R&D tax credit claims and what to expect

HMRC enquiries are no fun for anyone. If HMRC opens an enquiry into an R&D tax credit claim, your client will probably be stressed and worried about it. It is time-consuming for you, and you can never be sure what the outcome will be.

R&D tax credits are a niche area of tax. And this may make you nervous about suggesting them, in case they somehow expose your clients to a higher risk of an HMRC enquiry. This article will shed light on what an R&D tax credit enquiry is. It will also look at why they are opened, and what happens as the enquiry unfolds.

We hope that taking away the unknowns will give you more confidence to suggest R&D tax credits every time they are appropriate. We can provide expert advice that will give you confidence the PfP R&D tax credit service.

What are they?
When you submit an R&D tax credit claim for your client under the SME R&D tax credit scheme, HMRC will aim to review it within 28 days. If everything is in order, the claim is approved, and the tax credit and/or Corporation Tax reduction is awarded.

However, this review is not just a rubber-stamping exercise. HMRC need to protect the public purse. And sometimes they will require more information before they are satisfied that every aspect of the claim is valid. If they seek this clarification and ask further questions, it is called an enquiry.

What reasons may HMRC have for opening an enquiry?
There is not a set playbook of reasons why HMRC may open an enquiry, but there are some patterns that emerge. As you will see, some you can mitigate through good practice in the claim preparation, while other reasons are completely detached from anything you do.

First of all, let’s look at reasons within your control.

The enquiry could be opened due to questions arising in the wider tax return, and the R&D aspect is included along with everything else. Obviously, a well-prepared tax return will help here.

Then there may be something that HMRC finds unsatisfactory in the claim – an inconsistency, a lack of evidence, or an insufficient explanation of the technological advances. Using PfP’s expert R&D service can help here, as we have chartered tax advisers, technical experts and even ex-HMRC tax inspectors who can prepare the claim robustly.

There are a number of other reasons that an enquiry may be opened that you cannot avoid. These could include a matter-of-fact change in circumstance at the company, or a significantly more substantial claim value than in previous years. Or HMRC could just be focusing on a specific sector or technology.

What happens during an enquiry?
If HMRC opens an enquiry, they will write to let you and/or your client know that they have further questions relating to the claim. Any payment will be withheld pending a satisfactory outcome to the enquiry. This will normally last somewhere between a few weeks and several months depending on how complicated the claim is.

After your response to their initial questions, it is likely that HMRC will want to interview the competent professional who was involved in preparing the claim. This will allow them to clear up any misunderstanding, or if the claim was prepared poorly, to confirm their initial suspicions.

Depending on the outcome of these responses, HMRC may close the enquiry and process the R&D tax credit claim. Or they may offer a negotiated settlement. Or if they are not satisfied, the enquiry will remain open until a resolution is reached.

Contact PfP for expert help
If you need support with an enquiry, or you want your client's future R&D tax credit claim to be processed with minimal risk, then contact PFP R&D. Our team of chartered tax advisers, chartered accountants and technical specialists work solely on R&D tax credits so are expertly positioned to fully maximise your clients' claims. But at the same time ensure that they are robustly defensible. Call us today on 0330 010 4010 to find out more.