- “My R&D claim is now just a routine part of our annual accounts”
- “Our claim is too small for HMRC to be interested in checking”
- “I’ve been claiming R&D for years without submitting a technical report”
- “The chances of an HMRC investigation are so remote that I just put our entire development team in the claim”
- “I’ve been claiming R&D for the same project for 6 years with no issues at all”
- “Our claims are “approved” and paid every year by HMRC so I have nothing to worry about”
- “Everybody knows that HMRC never checks anything – they just pay out automatically!”
- “The Government has told HMRC to rubber-stamp every R&D claim to support the economy through COVID-19”
- “It’s all fine. My local accountant says he will defend our R&D claim if HMRC starts asking questions”
I’ve heard variations on these statements from companies claiming R&D Tax Credits literally thousands of times over the last decade and a half. But as the number of R&D claims submitted has sky-rocketed in recent years, reaching nearly 70,000 estimated submissions in 2018, how true are some of these assertions today?
And, even assuming you have a fit-for-purpose technical report and your financial calculations are consistent with the scheme rules, what is the likelihood you won’t get an HMRC enquiry?
A couple of years ago, the answer was “you probably won’t”, and almost certainly not if your claim value was less than £100,000. This is no longer the case. I am aware of one claim that HMRC is investigating where the tax credit was valued at less than £15,000.
The recruitment drive that HMRC undertook in 2020 means that they may have stepped up the number of enquiries at least threefold over the previous year.
There are 3 R&D Tax Credit teams currently operating within HMRC which until recently had around 50 staff in total. It is estimated that each inspector could perhaps handle up to 30 enquiries per year, giving a total of 1,500 enquiries per year, which represents around 2% of the total. With the addition of 100 new inspectors, the capacity will have risen to between 4,000 and 5,000 enquiries per year, which is approaching 7% of the total submissions.
In addition to an increasing number of enquiries HMRC now has the resource to spend more time reviewing submissions. For an average-sized claim, each inspector would previously have spent anywhere between 5 minutes to an hour reviewing each claim. They now have significantly more resource available to increase this review time. Any larger claims valued at over £100,000 will certainly come under much more rigorous scrutiny.
An HMRC enquiry is certainly much more likely than it was a year or even six months ago.
What can you do to minimise the risk to you and your clients? I’ve spoken with many companies over the years who either prepare their own “DIY” R&D claims or use their accountants to handle their claims.
With the increased levels of HMRC scrutiny, it is clearly preferable to work with specialist advisors who have the right technical staff on board to assist.
My strong recommendation to anyone already claiming or considering claiming R&D Tax Credits is to work with a reputable specialist advisor which employs ex-HMRC staff such as MSC R&D.
At MSC R&D, we have two ex-HMRC inspectors, including Gavin Bate who was the former HMRC technical lead for the R&D Tax Credits and co-author of the Guidelines defining R&D for tax purposes.
A number of clients have already benefitted from Gavin’s expertise in resolving complex HMRC issues so please get in touch below if you want to know more.
Extract from: https://www.linkedin.com/pulse/rd-tax-credits-how-likely-hmrc-enquiry-rufus-meakin/?trackingId=1JQ4BdfXTpywKXzrw50m5g%3D%3D
Rufus Meakin – Strategic Partnership Sales Associate
