Innovation keeps the UK at the forefront of today’s ever-changing world and one step ahead of global competition. But it is a costly business and the Government recognises that through its R&D tax credit schemes. This rewards business innovation by allowing additional corporation tax relief and/or cash refunds on qualifying expenditure incurred on innovation and R&D activities.
These incentives can be exceedingly valuable for businesses investing in the development of new products and processes. This provides a welcome reduction in corporation tax liability or a much-needed cash injection to further invest in R&D, support growth, improve cash flow, and reduce risk.
In an increasing number of R&D tax relief claims HMRC will ask for more information and an enquiry is raised. An inspector will ask questions to better understand the R&D and the costs claimed. If your claim can’t withstand this extra scrutiny and you or your advisor can’t answer HMRC’s questions it can affect the value of your claim and penalties may be applied.
Companies tend to dread the HMRC enquiry process for a variety of reasons, not least its daunting, complex nature and also the very fact that it can be so time consuming and disruptive.
We have identified eight major reasons why HMRC may enquire into a company’s R&D claim:
Given that tax inspectors at HMRC can open an enquiry – even if the R&D claims have been processed and the company has received the tax benefit – it should concentrate minds into making absolutely sure the claim is rock solid.
Making an R&D tax credits claim is not necessarily a skill possessed by innovative companies. You should use the valuable time of key staff members on core business, not administration, regardless of how productive it might be. Because making an R&D tax credit claim which is fully maximised and robust is a complex task, companies should use a specialist R&D consultant which has significant experience in the field and a proven track record of successful claims.
If HMRC does make an enquiry into a claim and has been resolved, the outcome is usually one of the following:
The first option is the perfect outcome, the second is workable but not so perfect, and the third might well be a disaster and lead to all sorts of repercussions and recriminations.
That is why R&D tax credit claims must be 100 per cent watertight and why businesses seeking peace of mind that their innovation will ultimately be rewarded should really ask for help from GovGrant’s experts.