Over the years HMRC have become tougher on R&D Tax Credit Claims. The R&D tax credit programme has now been in existence for about 20 years. Based on our experience in other countries like Canada, where the R&D tax credit program has been in existence for 35 years. One can better predict what is coming.
Generally the first 15 years of any R&D tax credit programme is about creating awareness of the programme. At the beginning, the programme is unknown and it takes years to encourage all eligible companies to file a claim.
Around the 12-15 year mark, the number of claims escalates. Currently there are over 70,000 companies making R&D tax credit claims.
Compared to other countries around the world to date, HMRC has had a light touch on querying R&D tax credit claims. But with the addition of over 100 inspectors focused on R&D tax credit claims, that is about to change.
What most companies believe is that when they file an R&D tax credit claim and subsequently receive a refund or credit. That HMRC actually reviewed and approved the claim. In actual fact, the claim was likely accepted as filed, with no review. HMRC simply cannot review every R&D tax credit claim.
What happens next is that certain claims are processed which at best, have borderline or ineligible R&D projects. Word gets around and stories start circulating that companies are filing R&D tax credit claims with little R&D work. Such as “I heard a high street bakery filed an R&D tax credit claim for developing a blueberry flavoured croissant”.
Once the media gets hold of this, the programme can be portrayed as one where it is easy for companies to abuse. This has happened in other countries.
Getting tougher on R&D
If HMRC suspects abuse, one of the first steps they will take is to take a few cases to court. The Hadee Engineering court case is an example. In this case, most of the R&D tax credit claim was denied by the court. However, more importantly, the courts made a number of comments regarding eligibility to qualify for the R&D tax credit claim. HMRC will use its channels to spread the result of this case and use the comments made by the court in their queries of R&D tax credit claims.
Hiring 100 new inspectors and armed with comments made by the court, will lead to some tough HMRC R&D tax credit queries for certain companies.
The good news is that companies carrying our R&D can take steps to ensure an excellent result when an HMRC query occurs. RDP’s Innovation Connection Program was designed to achieve this goal. As well as maximise the R&D tax credit claim and minimize the company’s staff time to track and document R&D projects.
In the meantime, if you have any questions on eligibility or wish to learn more about our Innovation Connection Program (“ICP”), contact us here