There is a new landscape in R&D tax relief, with recent media articles drawing attention to perceived abuse of the scheme.
Whilst the R&D tax relief remains a key focus of the government’s drive to support and encourage innovation in the UK, HMRC have invested additional resources to ensure that claims are correct and accurate.
What is happening?
Beginning late last year, a new R&D compliance team issued a large number of ‘nudge’ letters, raising awareness of fraudulent claims and notifying claimants that there will be an increase in compliance enforcement. This was followed by an increase in the number of Enquiry Notices being issued.
However, there are concerns about the experience of this new team as well as changes in the approach HMRC are taking to compliance checks. Any correspondence is via a generic email address, rather than an individual compliance officer, which restricts open discussion and a collaborative resolution to the enquiry. This ‘centralised’ approach also does not reassure taxpayers that their case will be handled by the same officer throughout the course of the enquiry.
If your company claims R&D tax relief you need to be aware of what these compliance checks mean, how to mitigate the risk of one being raised, and what do if you receive one. You also need to consider whether the advisor who helped you prepare the claim is willing to assist you in dealing with HMRC in the event of an enquiry, which can be raised broadly up to 12 months after the claim is submitted.
What does this mean for you?
The obvious point to make is that it is crucial that you are able to demonstrate the accuracy of your claim. Failure to respond appropriately to HMRC’s questions may result in an extended enquiry, which would take up considerable time and resources and open you up to the risk of penalties if any errors are identified.
You also need to demonstrate that you have taken reasonable care in preparing your claim. As highlighted in HMRC’s recent letters, the ultimate responsibility lies with the claimant. If you are using an advisor, are you comfortable that the work you have undertaken meets the threshold of qualifying R&D activity, and have the reasons for this been made clear to you?
Next steps
Whilst the risk of a HMRC enquiry cannot be fully eliminated, taking reasonable steps to ensure the accuracy of your claim will enable you to respond fully to HMRC and minimise the risk of penalties.
The landscape is constantly shifting, and this summer HMRC are looking to go to tribunal with several lead R&D cases, which will undoubtedly have an impact on future tax dispute resolutions.
If you have any questions on these issues and what they may mean for you then please get in touch. Claritas stand behind any R&D claim we have advised on, and we are prepared to invest our time and resources in defending them to HMRC. In the event that you receive an enquiry notice, or if you have not yet received an enquiry notice but have concerns about the correctness of claims your company has submitted, then our specialists in tax dispute resolution would be happy to hear from you.
