What is an R&D tax credit HMRC enquiry?
In a small, but growing, 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 you have a robust claim then this should withstand this extra scrutiny and you or your advisor should be able to answer HMRC’s questions. But if not then it can affect the value of your claim and in some cases penalties are applied. An enquiry might mean your R&D tax relief may be delayed but HMRC can raise an enquiry even if you have received the benefit.
Can GovGrant help even though I’m not a GovGrant client?
Absolutely. GovGrant is one the longest established innovation tax specialists in the UK, with the experience, knowledge and expertise to undertake a quick assessment of your R&D tax relief submission. We will give you a clear and frank opinion.
Your business may find itself facing an HMRC enquiry, but may not have the full support of your current advisor. Equally, you may not want to rely on your current advisor and would like a different, independent pair of eyes to review the claim.
What is a GovGrant enquiry report?
Our enquiry report will give you a straightforward opinion which will suggest your next steps.
We will produce a fixed fee enquiry report for you that details what HMRC are asking and how this aligns with the submission you made. We will break down our comments on the technical robustness of the claim, the financial appropriateness of the claim and if there are any other areas in need of attention.
From our enquiry report you will know how to handle the HMRC enquiry and what needs to be done.
We will label the project:
Green – you are in a strong position to respond to HMRC.
Amber – there could be areas of improvement and dealing with the enquiry may be challenging.
Red – a situation needs urgent and significant attention.
Patent analysis to demonstrate the R&D baseline
As part of an enquiry HMRC is likely to ask the question “How did you establish the baseline for your R&D?”. Using patent information can be a fundamental part of demonstrating that an R&D project is seeking to achieve an advance in overall knowledge or capability. This in turn establishes the baseline.
Many businesses assume they know what the baseline is just because they have been in the industry for a few years or decades. But one way to be absolutely certain is to analyse the patent landscape. Often products and technologies never make it to market, so effectively remain “hidden”. This can be because of a change in company leadership, direction, or market strategy. Or maybe the process is still in progress or has stalled because of an issue with the patent or the cost. Your competitors may have carried out the R&D before you, even if they don’t currently sell an innovative product.
GovGrant can provide a snapshot of the patent situation for a specific technology that answers the baseline question for HMRC.
Can GovGrant review an R&D tax credit claim without receiving a letter of enquiry from HMRC?
Absolutely. We can offer the same service against any of your previous submissions so that you have a clear understanding of any potential risks you’re carrying. You will have confidence that you’re in good shape and there are no unexpected surprises coming down the line. It also alerts you to any issue to be aware of in your next claim given an ever changing landscape. This proactive approach can be even more valuable when a business is looking to raise money when the R&D tax credit value is a point of review in the due diligence process.
The process of dealing with HMRC can be drawn out and resource intensive for companies. It can involve providing additional and more detailed evidence, going through historical data when perhaps key people are no longer available. If the costs to defend the claim are higher than the value of the claim itself then it may not make commercial sense to defend. In this case, it could be that you chose to withdraw the claim.
This doesn’t imply that the methodology of the R&D assessment process was at fault, simply that given the time and expense that the company would need to commit to defending the claim, it is no longer commercially viable to continue.
If the value of an R&D tax relief claim is reduced or changed then it is deemed an inaccuracy at which point HMRC is obliged to consider penalties. The penalty is calculated as a percentage of the extra tax that becomes due when the error is corrected. The level of penalty will depend on whether HMRC considers that the inaccuracy is through a lack of reasonable care (at the lower end) or deliberate and concealed (at the maximum of 100% of the extra tax).
Yes, it is possible to make an R&D tax relief claim whilst an enquiry is ongoing. The enquiry process shouldn’t interfere with meeting the legal deadlines to claim R&D tax relief. However, it may be sensible to consider the investigation and the line of questioning to inform any current or future claims.
HMRC can enquire into any open accounting periods. This “enquiry window” relates to 2 years from the date the tax return was filed. However, if fraud is suspected then HMRC can go back and investigate any previous claims.
If your arrangement with GovGrant is based on contingent fees, then your fee will be calculated on the revised claim value, subject to minimum fee levels.