What to Expect When Your Company’s R&D Tax Credit Claim is in HMRC Query

by | Jul 26, 2023 | UK R&D Tax Credits | 0 comments

What to Expect When Your Company’s R&D Tax Credit Claim is in HMRC Query

Are you worried about an HMRC Query? Many companies that submit R&D tax credit claims are facing enquiries now due to an excess of claim submissions. Which are either ineligible or fraudulent in nature. Once a upon time, HMRC rarely queried claims and did not even require supporting evidence on submission. Times continue to change as not only does a taxpayer need to provide detailed information regarding the eligibility of an R&D project. But they also have a higher likelihood of an HMRC compliance check.

It should be noted that HMRC reviews the application of penalties any time an R&D project is rejected or denied in part. Part of HMRC’s new standard submission criteria includes additional R&D information to be submitted via the new portal. This applies to all R&D tax credit submissions claimed on or after 1st of August 2023. This requirement is in addition to the filing requirements on the CT600 and/or CT600L.

Many companies we speak with that have claimed historically are worried about receiving notice of an HMRC compliance check.  They now wonder if they should be claiming R&D tax credits at all.   The best advice is to obtain a qualified assessment from a knowledgeable and professional  R&D Tax Credit service provider like RDP Associates (“RDP”). RDP helps prepare and guide companies through the R&D tax credit claim process, as well as defend the claim should an enquiry take place.

How do I Respond to an HMRC R&D Tax Relief Compliance Check?

Focus on responding quickly.  If you delay your response,  you are giving HMRC the impression you do not have the support to respond to their query.

Ensure you are ready to address all the R&D project eligibility criteria. 

  • The key criteria here is technological uncertainty. It’s the journey along the way that’s more important rather than the end result. This criteria is misunderstood by many companies and it is important to get it right.
    • Did you do a baseline check of the technology being developed before you start the project? You need to ensure the technology you are developing is not in the public domain.
    • Withdrawal of the R&D claim?: Watch out for penalties:
      • If you withdraw your claim, you could face penalties. As HMRC may think that the claim wasn’t eligible in the first place. Rather than withdrawing, get in touch with us. We will provide a complimentary review as to how to proceed with the HMRC compliance check.  
    • Will it affect your next R&D claim? R&D Projects carried forward vs. new R&D projects:
      • As long as there were no penalties or charges brought forward, it generally does not affect any new R&D projects that you undertake in the future. If an R&D project was disallowed by HMRC, it would not be wise to claim that R&D project in future if it was ongoing.   Keep in mind that during the next R&D claim, HMRC has every right to open an enquiry on new R&D projects. Even after the prior year query has been completed.
2023 Spring Budget announces more changes to the R&D Tax Credit Scheme

NOTE: Just because you received an R&D tax credit benefit, DO NOT assume HMRC has reviewed your R&D claim.

They could look at your R&D claim at a later date as they have 365 days to review your R&D claim after submission.  Many companies are surprised by receiving a compliance check letter after they have received their refund related to the R&D claim.

Here are some examples of why HMRC are denying R&D claims:

  • The project seemed routine and there was no technological advancement or uncertainty evident.
  • There is information in the public domain to achieve the advancement stated.
  • A Competent Professional was not associated with the R&D project(s).
  • The claimed advance was merely bug fixing and minimal technical risks that could be easily overcome by a competent professional.
  • This was an advance to the company not within the industry.
  • The advance was described as a commercial advance not a technological advance.
  • There was no contemporaneous evidence of the R&D work.

How RDP Associates Can Help with an HMRC Query

RDP’s full-service package includes defending and managing HMRC compliance checks.  However, we also assist with compliance checks where companies have either completed their own R&D claims and/or have had their R&D claims prepared by other service providers.  We also have our own proprietary system to identify and track R&D work as it occurs and advise.

To find out how we can help with your HMRC query and how we go about our overall R&D tax credit claim process. As well as our success stories, please contact our team today by reaching out to us at …. 0208 214 1341 or email Jenni on [email protected]