In the last two years, HMRC has increased the rotation of inspectors around HMRC units and are now employing additional inspectors specifically within their R&D tax relief claims unit. This has led to a significant increase in R&D tax relief compliance checks, also known as “enquiries”.
The claims that are being singled out for compliance checks, all share some common themes:
- Ensuring that companies are providing adequate and appropriate detail in relation to claims, i.e. clearly identifying they match qualifying criteria;
- Providing clearer understanding of HMRC’s own interpretation of the guiding legislation;
- Querying the qualification of an agent’s competency, picking up on the themes from recent discussions around PCRT and FRC’s ethical standards.
While enquiries take up valuable time, the ultimate consequence is a delay in HMRC settling the claim, which in turns hinders the injection of funds back into the claiming company. Worse still, there could be a reduction to the benefit being offered by HMRC or a total rejection of the claim!
So, what are the three steps companies must follow to ensure they minimise the likelihood, and impact of an enquiry?
- It’s vitally important that businesses provide crystal clear supporting documentation for their claims. When it comes to justifying the claim, there should be an explicit statement of the baseline of knowledge at the start of the project, along with where the team hoped to advance the baseline, identifying the technical uncertainties which were addressed in the process of making the advance, as well as the work done to resolve these uncertainties.
- The claiming company then needs to be accurate in the reporting of costs and expenditure.
- Finally, the company needs to clearly identify the credentials of individuals being cited as “competent professionals” in relation to the eligible R&D carried out, as well as those of their chosen agent preparing the R&D tax relief claim.
Being able to prove you have followed the above three steps whilst compiling your claim should satisfy HMRC inspectors that the claim is justified, accurate and robust.
Make UK members who have questions relating to R&D tax relief or wish to discuss the implications of recent changes to the R&D tax relief scheme, can contact Sandy Findlay on 07807 739033 or email [email protected]
ABGI is a leading international tax incentive and innovation management advisor. They already help many Make UK members accelerate their innovation activity by identifying and securing appropriate funding in the form of grants, tax incentives or commercial funding.
With 30+ years heritage and 200 experts, ABGI manage £1.6billion of innovation incentives annually across 19 countries, for some of the world's best-known brands.