What is an R&D tax credit enquiry?

Technical guidance - April 2018

Being subject to an HMRC enquiry can be scary for any business owner. This is especially the case if you have filed your R&D tax credit claim yourself. So, what exactly is an enquiry? How can you reduce the chances of being subject to one? And, what should you do if you do get investigated? We will reveal everything you need to know in this blog post.



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What is an R&D tax credit enquiry?

Each year, thousands of R&D tax credit claims are submitted to HMRC. Of these claims, a portion will be subject to an enquiry. This means that HMRC will investigate the claim in further detail. They will request further clarification from you to prove that what you are claiming for is accurate. Such scrutiny can make any business owner feel nervous, even if you’ve filed your claim form correctly. It’s often a good idea to seek expert assistance to help you navigate the investigation process.


Why has your business been subject to an enquiry?

There are a number of different reasons why HMRC may launch an enquiry against your business. This includes the following:

• You may have used inadequate or poor methodology when calculating the qualifying research and development costs in the project.
• If this is your first claim, HMRC may simply want to make sure that the activities you have undertaken do qualify for tax credits.

• If you have claimed that the majority of your staff or all of your staff are doing research and development, this may raise a bit of a red flag and HMRC may want to clarify.
• HMRC may want to make sure your claim falls in line with BIS guidelines.

• You may have listed your directors as sub-contractors. This is not allowed, yet it is an error a lot of business owners make when filing their own claims.
• The R&D Unit that is handling your claim may want clarification over how they would prefer a specific cost to be treated.

• HMRC may want clarification regarding contractual agreements if there is a complex group structure involved.
• You may not have adequately explained the appreciable improvement or advance in technology or science, and therefore, HMRC may feel this needs further clarification.

This list is by no means exhaustive, but it should, hopefully, help to give you a better understanding regarding the various reasons HMRC may have decided to investigate your company.


How to avoid being investigated by HMRC

The best way to avoid being subject to an HMRC R&D tax credit claim enquiry is by getting your claims handled by professional R&D tax consultants. By doing this, you will eliminate the chances of a mistake being made on your application, which could result in great scrutiny from HMRC. There are lots of mistakes that business owners tend to make when filing their own claim, and this is often why they end up being investigated. We have already mentioned the common error of listing directors as sub-contractors. Aside from this, a lot of business owners accidentally claim for things that aren’t eligible, and there are many that claim for the HMRC tax year instead of their financial year. With the assistance of R&D tax experts, you can have peace of mind that all of your claims are constructed in the correct manner.


How to navigate an enquiry if it happens

If you do get investigated, you will need to prepare for your meeting with HMRC. You should not be intimidated by the HMRC inspector you are meeting with, but you also should not take the meeting lightly. If any information has been requested, make sure you prepare this in advance. You also need to familiarise yourself with the claim documentation before the meeting so that you can be ready to answer any questions. You also need to get to grips with the BIS guidelines. Hopefully, you are already very familiar with them. A good R&D specialist will be able to guide you through the process and make sure you are fully prepared. They will know the sort of questions the inspector may ask, and this can help you to feel a lot more assured.

Hopefully, you now have a better understanding regarding HMRC enquiries for R&D tax credit claims. If you have received notification that your company is going to be investigated, the best thing to do is get in touch with the experts at F.Initiatives. We can help to ensure a successful outcome. Our team of R&D tax credit consultants can also handle your claims for you so that you can avoid the dreaded enquiry process. For more information, please do not hesitate to give our team a call on +44 (0) 20 7653 1921.

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