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What HMRC giveth, HMRC taketh away…

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HM Revenue & Customs

HMRC enquiries into R&D claims are on the increase.

In March this year, HMRC proudly announced the creation of their R&D task force. Its job is to undertake enquiries into R&D claims that companies have made to ensure that they are not fraudulent or incorrect. Sure enough, in recent months we have noticed a marked increase in the number of enquiries HMRC are opening into historic claims for Research & Development tax credits. They are enjoying considerable success with their investigations into fraudulent claims

HMRC is all too aware that some unscrupulous individuals have set themselves up as R&D specialists without any actual knowledge of the rules and the legislation that underpins them and without any expertise in that area. HMRC knows that there have been what they refer to as “abusive R&D claims” either as a result of negligence or dishonesty. Indeed, our clients tell us that they are regularly called by firms purporting to be R&D specialists who claim to be able to secure huge tax refunds for them. HMRC’s estimate of the loss due to incorrect or fraudulent claims tops £600 million – and they want it back.

My claim has been accepted, so I’m in the clear, right?

The fact that a claim for R & D tax relief has been processed without any question by HMRC and the tax credits have been allowed, does not mean that you are out of the woods. HMRC operates a “process now, check later” approach to claims. Unfortunately, we are now very much in the checking phase and due to increases in their R&D investigation manpower the number of investigations will continue to increase.

If your claim was large or complex and possibly submitted without a detailed technical narrative and without reference to the Department of Business Innovation and Skills definition of what constitutes R&D, you may have cause for concern.

What’s the worst that can happen?

If an HMRC enquiry shows that your claim was excessive or incorrect they will disallow the claim in full and require repayment of any tax refunds they may have already made. It is quite likely they will seek to charge a penalty and in extreme cases that penalty could be equivalent to 100% of the tax at stake.

What are the warning signs?

If you receive a “nudge letter” from HMRC with regard to R&D claims that you have made this could be a prelude to a full-blown enquiry. You should look carefully at what HMRC is suggesting or asking for and you should immediately take professional advice.

Friend Partnership Limited have been dealing with R&D tax credits for over 20 years, since their introduction back in 2000. We have gained a detailed understanding of the R&D tax credit system. This depth of knowledge and experience, coupled with our successful track record defending clients from HMRC enquiries in all areas of tax and accounting, makes us worthy of an hour or so of your time for a no obligation chat about your current situation.