Given that most companies making an R&D tax relief claim will likely be scrutinised by an HMRC compliance check, it has never been more vital to be well-prepared.
From Rare Occurrences to Standard Procedure
Historically, compliance checks into research and development (R&D) tax relief claims were rare, usually triggered by a clear error within a claim. However, as HMRC has recently pivoted towards a volume approach to compliance to combat fraud and error, these checks have become an expected part of the claim submission process.
Regardless of the strength of supporting evidence and the accuracy of associated cost schedules, your claim now carries a significant element of risk. It is also increasingly common for HMRC to reject claims under Finance Act 1998 Schedule 18, paragraph 16 without initiating a compliance check.
Compliance Checks: Focus on Entire Claim Validity
HMRC increasingly demands more detailed evidence to support a claim during an enquiry. Instead of challenging specific costs, HMRC now assesses whether the company genuinely sought to advance knowledge or capability in a science or technology field. Consequently, claims are now often questioned in their entirety, making it more challenging to negotiate and reach a compromise.
Navigating HMRC’s Inconsistency
Despite having guidelines from the Department for Science, Innovation and Technology defining eligibility criteria for an R&D claim, the HMRC’s approach to compliance checks can vary dramatically depending on the involved team.
The Wealthy & Mid-Sized Business Compliance (WMBC) unit at HMRC is more likely to yield a successful outcome compared to the Individual and Small Business Compliance (ISBC) unit. If the claim is flagged by the former, the company can expect a more tailored and evidence-considering approach, making a positive outcome (often an amended claim) more likely.
ISBC-led compliance checks, however, can often lead to frustration, owing to their templated approach and lack of reference to specific original evidence. Despite the temptation to simply point to previously provided information, the best course is to restate the case clearly and provide new or more detailed information.
Dealing with Rejected Claims
If a claim is rejected, the company can appeal the decision via a statutory review. The success of this review is far more likely if the company has thoroughly followed compliance best practices, and collated and presented all facts and information clearly. This evidence—from professional commentary, and documentation of activities, to a record of HMRC’s mistakes—can play a crucial part in the successful outcome of a compliance check or statutory review.
Understanding these dynamics and preparing for the HMRC’s compliance checks can dramatically increase the likelihood of your R&D claims being accepted. Implementing a well-planned strategic approach and reinvesting the time to provide detailed evidence is key to navigating the compliance checks successfully.
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*The content in this article is for your information and education only and is not intended to address your particular personal requirements. The information does not constitute financial advice or recommendation and should not be considered as such.
