As mentioned in prior insights into the R&D tax credit schemes, HMRC is significantly increasing their compliance checks. If HMRC denies all or part of an R&D tax credit claim they are also required to review whether they should impose penalties.

HMRC’s 5 Questions Regarding Penalties when it comes to R&D Tax Credits:

Here are the 5 questions we’ve seen most often when HMRC is considering whether or not to impose penalties. HMRC doesn’t seem to have a consistent set of questions about whether or not to impose penalties, per se, however, we’ve seen the following 5 questions the most often:

  1. At the time of submitting your claim to R&D – SME Relief, did the company read and fully understand the R&D guidelines at CIRD80000 within HMRC’s Corporate Intangibles R&D Manual?
  2. Why did the company believe that this project would initially qualify for R&D?
  3. Did the company seek any advice from a Tax Professional regarding your claim? If so, who was the specialist and what steps were taken to verify their credentials? E.g. What steps were taken by the company to check the validity of the R&D claim?
  4. Has the company ever sought advice from HMRC regarding R&D? If so, when was this and what was the outcome?
  5. Are there any exceptional circumstances you would like us to consider when we are determining a penalty charge? Why did the Company initially make a decision to claim R&D tax relief?

Essentially, HMRC is looking for situations where they feel the company deliberately or carelessly filed an R&D tax credit without the due diligence one should take to submit a reasonably well-thought-out and supported R&D tax credit claim.

What if a penalty applies?

If a penalty does apply, HMRC has recommended steps you can carry out to reduce the amount of the penalty. These steps include:

  • Providing full disclosure of why and how the R&D claim was prepared.
  • How quickly you reported the situation and communicated with HMRC in a professional and timely manner.
  • Providing documents to support your position.

HMRC will have 12 months from the date they start the amount of tax lost query  to issue a penalty notice.

Need help with an R&D compliance check or R&D Tax Credit Claim?

We have considerable experience dealing with tax authorities on R&D tax credit matters for over 30 years.

If you are undergoing a compliance check, simply want to ensure you are filing a valid R&D tax credit claim or worried about the HMRC’s 5 questions regarding penalties, please contact Jenni at 0208 214 1341 or email [email protected].