HMRC R&D Tax Relief enquiries – a good advisor is important

HMRC do not publicise their criteria for selecting R&D claims for enquiry, nor their frequency.

But it is clear the selection process combines a risk-matrix approach:

  • How much tax may be at stake
  • How likely is the claim to be correct

Combine these two points with several randomly selected enquiries to protect the system.

An enquiry can be time consuming and frustrating as HMRC try to get to grips with your business and the technology.

So it is best avoided if possible because once an enquiry is underway it can drag on unless your advisor knows how to handle it and bring it to a conclusion.

A good advisor and a well-presented report will assist in avoiding this.

The choice of such an advisor is therefore very important as there exists wide variations in fees, service levels and competency.

Always make your own assessment of the advisor and do not rely on their claims of success, as these can be hard to substantiate.

Remember – there is frequently a trade-off between fee and service level.

If the fee is very low, the amount of work the adviser can afford to carry out is also likely to be low. And, to maximise their return, large firms will get much of the work done at a junior level, so the headline staff you see on their pitch for the business may not be the ones who prepare your claim.

Some companies negotiating a low fee arrangement may find themselves with a very reduced service from the adviser.

At a minimum level, this might consist of an initial briefing on the regime, and a template for the company to fill in so that the adviser can then cut and paste this into a claim document using largely standard text.

By contrast, a maximal service might consist of several key stages.

These should include scoping a claim potential, together with initial briefing sessions on qualifying R&D and allowable costs.

There should be interviews with the competent professionals for each claimed R&D project, to extract the necessary information for the claim.

There needs to be clear and informative recording of narratives for each project – in the form requested by HMRC – and a clear interpretation of contracts for external assistance, to identify if they meet the qualifying conditions.

This high-end service will provide the assistance needed to extract the necessary financial information. It will also ensure clear advice on best practice, regarding issues such as reasonable approximation and estimation, together with identifying capital and revenue R&D expenditure.

It will combine technical and cost information into an individual claim narrative document for presentation to HMRC, claiming any available capital or revenue R&D reliefs as appropriate.

You’ll get advice on how this affects the tax computation and how to detail the claim in the company tax return.

And, should it be necessary, conduct any necessary negotiations or enquiry work with HMRC.

MSC R&D has been delivering this level of service successfully since the inception of the R&D Tax Relief scheme, and can advise on R&D Allowances and Patent Box.

We also provide a full range of R&D funding solutions, so the understanding we gain of a client’s business during a R&D Tax Credit claim can be put to productive use in helping them access the full level of R&D funding they require.

Contact us on 0114 230 8401 to discuss your requirements.