Nobody wants a HMRC enquiry into their R&D tax Credit claim. At the very least, it consumes valuable time defending it. At the very worst, it results in not just HMRC clawing back payments over several years, but also wider investigations into all the tax related aspects of a business.
Even as recently as a couple of years ago, the likelihood of a R&D Tax Credit claim under £100,000 attracting the attention of HMRC was pretty low.
This low level of scrutinisation has led to the inevitable abuse of the system, encouraged by dozens of rogue advisors entering the market.
However, faced with clear evidence of overclaiming in recent years (c£300m), slowly but surely, HMRC has begun to flex its muscles, and it really is only a matter of time now before the R&D Tax Credit market gets its house put in order.
Of particular concern is the Software sector, where the pace of innovation is accelerating, necessitating frequent adjustments to the ‘qualifying/non-qualifying’ activities. Companies submitting their own claims (or via less than scrupulous advisors) have historically been slow in recognising these changes and have continued to submit ‘as is’.
HMRC have significantly increased their staff during 2020, trebling the size of their R&D Tax credit teams. 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.
The recent ‘nudge letters’ are an obvious sign of things to come.
The presentation of the claim document is often a contributing factor to whether a claim is accepted. Failure to distinguish between ‘challenging’ and ‘uncertain’, or failure to spell out the precise nature of the technical advance are common trigger points.
MSC R&D do not compromise when doing claims for our many clients. Compliance and optimisation is a given. Don’t settle for anything less.
