Top Tips to avoid the risk of an HMRC Enquiry on your R&D tax relief claims

HMRC has a responsibility to ensure that individuals and businesses are paying the correct amount of tax and claim the correct amount of tax benefits.

25 April 2022

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HMRC has a responsibility to ensure that individuals and businesses are paying the correct amount of tax and claim the correct amount of tax benefits. To perform this role, HMRC carry out compliance checks to make sure a company’s tax return is correct.

How often do they check?
Some checks are made on a random basis, and some are triggered because of specific entries on the company’s tax return of financial statements. When a company submits a claim for R&D tax relief an entry is made on the company’s tax return to show the eligible expenditure identified concerning a company’s R&D projects. HMRC may engage one of its specialist R&D Units to ensure that this figure is in compliance with the legislation and eligibility criteria set out for R&D tax relief.

No company wants to be subjected to a stressful HMRC enquiry, but armed with the correct knowledge and experience you can vastly reduce the chances of an enquiry into your R&D tax relief claims, which is one less thing to keep you awake at night!

We ask our resident expert Dr Kevin Bailey to give us his recommendations for making successful, enquiry-free claims...

Risk example #1 – Is this R&D?
There are several reasons why HMRC may seek further clarification on a company’s claim for R&D tax relief. On initial review of the company’s website, it may appear to HMRC that the company is not from a sector that would normally be associated with undertaking research and development activities that meet the qualifying criteria of the scheme.

Top Tip: This risk can be alleviated by ensuring that each claim submitted by a company is accompanied by a technical narrative that robustly and concisely provides evidence of why the work undertaken by the company is eligible for R&D tax relief. This should clearly summarise the industry technological baseline and the development work undertaken by the company to resolve specific technological uncertainties encountered when trying to develop an improved solution. In sectors with strong eligibility, this is more easily demonstrated. However, for some companies, the field of science being advanced may be less obvious and therefore the requirement for a convincing presentation of the technology piece can be crucial to the acceptance of the claim. In the absence of this narrative, HMRC is likely to seek its own assurances directly with the company.

Risk Example #2 – Costs that count
A further risk of a claim being challenged by HMRC is that claims costs have not been compiled in accordance with the legislative guidelines. This risk can be generated as a result of numerous different reasons, such as the impact of reported grant income in a set of accounts on the R&D claim, company structure and ownership, accounting policies when dealing with revenue and capital expenditure, and the basis of compilation of project costs and assessment of staff contributions and costs incurred within a commercial project, as opposed to limiting the assessment to a defined R&D project.

Top Tip: It is imperative that sufficient granularity can be provided to not only support the R&D claim included on the tax return, but also to reassure HMRC that the costs have been compiled correctly.

In conclusion

An HMRC enquiry is bad news. The best defence against one is to use experts in the first place.

Working together with ABGI UK could make a big difference to the accuracy and value of your claim.

To arrange a free consultation to discuss your own R&D tax relief specific circumstances, to identify how we can work with your team to improve the claim process and realise greater value for your business, contact the ABGI UK team on 0203 984 0321 or