Published 25/01/2023
Modified 04/02/2023
5 min read

What can trigger HMRC to enquire into an R&D Tax Relief claim?

With HMRC enquiries into R&D Tax Relief claims rising, Innovation Tax look at the main triggers which can instigate an enquiry / compliance check

What can trigger HMRC to enquire into an R&D Tax Relief claim?

Over the past six months, HM Revenue and Customs (HMRC) has significantly increased the number of enquiries into R&D Tax Relief claims, mainly to counter error and fraud, with a recent announcement from the Treasury concluding that 84% of closed 1-2-1 enquiries were determined to be inaccurate in 2022-23. Source: HM Treasury

There are several factors that can trigger a HMRC enquiry into an R&D Tax Relief claim, including:

  • High claim value – claims that are significantly higher than the average for similar companies in the same industry may be subject to scrutiny.
  • Inconsistencies or errors in the claim – if there are inconsistencies or errors in the claim, it may raise red flags for HMRC and prompt an enquiry e.g. routine activities / non-qualifying costs being claimed
  • Lack of documentation – if documentation supporting the claim is inadequate or missing e.g. a Technical Report documenting compliant activities (in line with the legislative guidance and BEIS Guidelines) should be submitted, along with a Financial Report showing a breakdown of associated costs to evidence the claim being made.
  • Unusual activities – if the activities being claimed for are not typical of the industry in which the company operates or appear to be overly broad.
  • Recent changes in legislation – HMRC may conduct enquiries where recent changes in legislation have not been factored into the claim.
  • HMRC risk-based compliance – to ensure compliance with R&D Tax Relief laws, HMRC may conduct enquiries on selected claims as part of their risk-based compliance program.

It is important to note that an enquiry does not necessarily mean there has been any wrongdoing, and it’s important to work with a professional R&D Tax Relief advisor to ensure that your claim is accurate and compliant with all relevant legislation.

Reducing the risk of an enquiry

To reduce the risk of an enquiry from HMRC into an R&D Tax Relief claim, it is important to consider the following:

  • Understand the eligibility criteria: Make sure that you fully understand the criteria for R&D Tax Relief and that the activities you are claiming for meet the criteria set out in the BEIS Guidelines.
  • Be reasonable: Avoid making claims that appear excessive or unreasonable.
  • Accuracy: Make sure that the information provided in the R&D Tax Relief claim is complete and accurate, and that all required information is included.
  • Keep up-to-date with changes in legislation: HMRC periodically updates the rules and guidelines for R&D Tax Relief, so it is important to stay informed about any changes that may affect your claim.
  • Provide supporting documentation: Ensure that your submission includes detailed Technical and Financial Reports to justify the claim being made.
  • Keep detailed records of your R&D activities and expenses, including documentation to support the nature of the R&D and the costs incurred.
  • Use a specialist R&D Tax Relief consultant: Specialist R&D Tax Relief consultants have in-depth knowledge of the R&D Tax Relief process and can assist with preparing and submitting the claim, as well as provide guidance on how to avoid an HMRC enquiry.

By following these steps, you can increase the chances of a smooth and successful claim and reduce the risk of an HMRC enquiry.

Innovation Tax can help reduce the risk of an HMRC enquiry by providing expert guidance and support in preparing and submitting R&D Tax Relief claims.

Here’s how we can help:

  • Expert knowledge: Innovation Tax have in-depth knowledge of the R&D Tax Relief process, including the eligibility criteria, requirements, and guidelines set by HMRC. This knowledge can help ensure that your claim is compliant with HMRC’s requirements and reduce the risk of an enquiry.
  • Preparation of claims: Assist with the preparation of your R&D Tax Relief claim, ensuring that it is complete, accurate, and meets all of HMRC’s requirements.
  • Identification of eligible activities: Innovation Tax can help you identify eligible R&D activities, which may not be immediately obvious, and ensure that you are claiming for all of the R&D activities that qualify for relief.
  • Documentation support: Support in gathering and presenting the necessary documentation to support your R&D Tax Relief claim, reducing the risk of an enquiry due to a lack of supporting documentation.
  • Ongoing support: Provide ongoing support and guidance throughout the R&D Tax Relief process, ensuring that you remain compliant with HMRC’s requirements and reducing the risk of an enquiry.

If you’re looking to take advantage of the R&D Tax Relief program, our team of specialists can help you navigate the R&D Tax Relief process, ensuring that your claim is compliant with HMRC’s requirements whilst reducing the risk of an enquiry.

Contact us today to schedule a consultation and learn how we can help you maximise your benefit and reduce your tax liabilities. 

HOW CAN WE HELP?

At Innovation Tax, we dedicate time to our clients and partners to inform them of changes and new developments which may be of interest and go over and above expectation to demonstrate that we are not just R&D Tax experts.

Start the conversation with a complimentary, no-obligation chat about your R&D work.

Innovation Tax specialise in helping companies access vital innovation tax incentives and grant funding to enable their businesses to grow, increase profitability, reduce risk and enable further investment in R&D, IP and capital assets.

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