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What Can You Do to Prevent An R&D Tax Credits Enquiry from HMRC?

Posted on August 16, 2021

Innovation is vital for our modern society; it keeps us ahead of global competition and discovering new opportunities. It is well known that innovation comes with risk that can be costly, which is why the UK Government introduced the R&D Tax Credits incentive in 2002 to reward businesses carrying out qualifying projects and activities with additional corporation tax relief or cash payments.

Since then, over £27bn has been claimed by HMRC placing London only second to Silicon Valley in the United States. For every £1 spent, 33p of R&D expenditure is claimable providing a pleasant decrease in corporation tax liability and a cash injection. So why do so many businesses miss out on the incentive? – They are concerned about the risk of HMRC making enquiries into claims.

The process of dealing with HMRC can be a daunting, time consuming and confusing process. HMRC open enquiries on a certain percentage of R&D Tax Credit Claims, generally more frequent in the RDEC scheme as part of their review process to check that it is still performing correctly and distributing the fund fairly.

The main reasons that HMRC may enquire into a claim are:

          Lack of supporting documentation to explain the company’s qualifying R&D activity

          The costs included in the claim are more than the costs allowable for tax purposes and included in the company’s accounts

          The percentage claimed for qualifying R&D activities that are undertaken by staff/subcontractors is not supported by the R&D activities undertaken by the company

          Incorrect claim methodology

          Errors in filing or amendments to the tax returns

          An assessment of the R&D activity being made by someone that is not deemed s a competent professional within the business.

How To Prevent An Enquiry

Provide Sufficient Supporting Evidence

To prevent an enquiry from HMRC, it is important that you provide adequate supportive evidence, this will be details about your R&D Project and precise documentation of the activities that you are claiming for, the beginning and end of the project should be documented clearly.

Include Technical Staff

Including the technical staff that were directly involved with your Research & Development project is a must, ensuring that they are involved in the documentation and that they are the ones making judgements about the claim.

Answer Questions Clearly

The questions asked by HMRC when submitting the R&D Claim should be answered clearly, precisely and in detail. The claim should be well prepared as this will give the claim a better chance at standing up to scrutiny and being paid out in a timely manner. Including a superior narrative and vigorous methodology will result in a maximised claim and also ensure that you are protected against enquiries, penalties or reductions.

So, what do you do if your claim is Enquired?

Respond Effectively

A claim enquiry can sometimes take at best several months to resolve, which can become an issue for companies. By not responding in a timely and effective manner you could increase not only the time duration of the claim being resolved, but also the scope of the enquiry. If your claim is enquired and you have not had specialist advice from an expert, an enquiry is your call to action to do so as the claim will then be successfully processed, and the issue resolved.

Seek A Professional

If your R&D claim has been prepared according to the legislative criteria by HMRC and is backed up by accurate data and supporting documentation, then it will be successful regardless of how carefully it is scrutinized so there will be no need for worries and anxiety. Using an R&D specialist like Green Jellyfish will ensure that the claim is as rigid as possible, it is important to know that making an R&D Tax Credit claim is not necessarily a skill possessed by innovative companies and individuals, but a skill possessed by an expert.

 To find out more information about R&D Tax Credits, the process or if you need urgent help with an R&D Tax Credit Enquiry, Contact Us now at 0333 252 7788