The conversation that GovGrant has been having with our clients over the last 5 years has evolved. We started with “have you heard about R&D tax credits” then “have you maximised your R&D tax credit claim”. Today we can maybe assume that more of the right people are claiming, and getting value from their R&D tax relief claims. So now we’re moving to “are you sure you’ve got it right”.
Are there risks in claiming R&D tax relief?
Guess what? R&D tax credits are NOT free money for businesses. This is a £7.4bn cheque that comes out of the government coffers. To put that in perspective, that’s the equivalent of funding the NHS for over 3 weeks. I must admit I get seriously animated when people consider this an entitlement, and that it’s ok to bend the rules to claim more.
With such a lot at stake, the main risk of submitting an erroneous R&D tax relief claim is that it will result in a subsequent HMRC enquiry. Recently there has been a shift in the HMRC approach which makes this more likely.
This shift has been caused by two main considerations:
Firstly there is enough knowledge now that the boundaries of the scheme and application of the legislation should be well understood. This means that, in practice, enquiries now have a more adversarial feel to them. Today the investigation will come down to the interpretation of the legislation and a difference of well-informed opinions. Having experience with enquiries is vital for an advisor as without that experience, the likelihood is that you will lose the argument. This can result in the repayment of any funds received, plus penalties. The penalties can be as high as 100% of the money received. And that’s before you consider the big headache and time drain that an HMRC enquiry represents.
The second reason for the change of mood is that, quite rightly, HMRC are now frustrated by poor compliance that is often driven by inexperienced or poor quality agents. We are increasingly seeing good businesses who unwittingly select a questionable agent, and now that relationship has unraveled because they had no idea how poor the advice was. They chose the agent because of the bold statements on their websites or the good news stories, but the reality just didn’t match up.
Mitigating the risks of an HMRC enquiry
At GovGrant we invest our time in understanding HM Treasury’s thinking and consulting with the industry and decision-makers. We can see what’s coming next, so we know what risks we need to manage. The most recent consultation, and subsequent changes to the scheme from April 2023, picked out overseas costs as a significant change. This came as zero surprise to us. The focus on UK spill-over is a big chunk of the business case for R&D tax relief. We could see that when the R&D costs are incurred overseas, then sometimes so is the ongoing economic benefit, including future jobs.
When does HMRC decline a claim?
HMRC do not “decline” or “accept” or “approve claims”, nor do they agree on specific methodologies. These may be phrases you’ve heard but sadly it simply isn’t the case.
R&D tax relief claims are processed by the general Corporation Tax team at HMRC. The function is predominantly administrative and relies on automation and red flags that are built into the system to pick up errors at source. When a claim is paid or benefit taken, this is not the end of the matter. HMRC has the right to raise an enquiry against claims up to 2 years from the filing date of any tax return or amended tax return. However they can, and often do, go back further if they identify a non-compliance in a current enquiry and suspect that non-compliance will have occurred in previous periods too.
Five things to help you select your R&D tax relief advisor?
We are certainly not in the business of scaring any business when it comes to claiming R&D tax relief. This is the government’s way of rewarding and incentivising R&D, and it’s there to make sure that innovative businesses get the investment they need to grow. But we do want to make sure that you are in good hands.
To read more about selecting an R&D advisor for your business, see my other blog post.
In summary, these are the four key considerations when selecting your R&D tax relief advisor:
- Time – Think about how much time your advisor spends on your claim. We would suggest that 30 minutes isn’t enough time to get to know your business, never mind make a compliant claim.
- Cost – Think about the cost vs the value to your business.
- Risk management – You should be aware of the risks of an HMRC enquiry and understand what quality assurance processes are in place with your advisor.
- Support – You should know that your advisor will have your back. But look beyond the website claims, do they have enough R&D tax credit experience to offer genuine support if you do face an enquiry.
We’re here to help – If you’re in any doubt speak to us. We’re happy to discuss your concerns whether you’re an existing client or not.
To find out more about how GovGrant can support your business contact us.