HMRC is taking action on erroneous or fraudulent R&D tax credit claims by issuing compliance checks for claimants. Don’t wait for your letter to arrive. Here’s why you should review your R&D claims and what to do if you receive a letter from HMRC.

Why you should review your previous claims

HMRC has allocated extra staff to R&D tax relief compliance and is carrying out work to reduce the scale of errors and fraud within the scheme. As a result, there will be additional checks to clamp down on abuse of the relief, and HMRC has already begun R&D investigations by issuing fraud/compliance check letters to claimants.

With these additional checks taking place, your existing claims could be at risk of investigation, even if you’ve received a cash payment or a reduction in the amount of tax paid. We strongly suggest an R&D claim review if:

• You used an unregulated boutique firm to make a claim

• You’re unaware of how the numbers were prepared or why specific costs are being claimed

• You used a simplified approach, online platform, or template to prepare a claim to speed up the process

• You’ve prepared your claim in-house and do not have the appropriate quality control checks

If you have concerns that your existing claims might be checked, the best approach is to have your claim reviewed by an independent regulated firm, such as Buzzacott, to look for issues that HMRC might challenge. Should they contain errors, a disclosure will be necessary. By making a disclosure before HMRC finds issues, your penalties and risks are significantly reduced. Should HMRC find errors beforehand, you could be liable to penalties of up to 200% of the cash payment received or unpaid tax.

Nudge letters

A nudge letter is any letter from HMRC that prompts a taxpayer to review their affairs and correct any irregularities.

Originally nudge letters were sent in relation to offshore income and assets, now the same principle is being used in other areas, such as R&D claims.

What to do if you receive a nudge letter?

• Do not ignore the letter. While receiving a nudge or ‘eligibility’ letter does not necessarily mean a previously submitted tax return is incorrect, this prompt should not be ignored.

• Seek specialist advice straightaway. A compliance review is encouraged before responding to HMRC.

• Review any historic submissions made to HMRC.

• Once a review has been carried out and you and/or your advisor are satisfied that everything is in order, you should then respond to HMRC.

How to avoid an R&D investigation with new claims

The best way to avoid an R&D investigation is by having a claim that captures the information HMRC needs to show it’s valid. HMRC requests the following:

• The company should submit a full tax return detailing the R&D claim spending, a report setting out the rationale for the R&D claim, a set of accounts, and the company's BACs number.

• This information should be submitted to HMRC via their internet portal, rather than giving paper copies, that must be reconciled to earlier submissions.

You need to ensure that your processes, and checks employed, in preparing any claim are communicated to HMRC via your written submission document. This will allow an inspector to have more confidence that the claim is valid and can be processed with minimal delay.

Many claims we see are high-level or boiler-plated, which leads to inconsistencies and confusion when compared with the costs included in the submission. Now is the time to revisit your claim and ensure it’s clear, concise, and discloses all of the key steps taken to prepare the claim. Investing more time in your claim documentation could save you costly processing delays or an enquiry.

How we can help

Our Innovation Incentive and Tax Disputes and Investigation teams can work closely together to ensure your R&D enquiry is resolved quickly and efficiently, resulting in minimum disruption to your business.

Claim review and disclosure

We can review your claims; our experts have backgrounds in engineering, science, and policy, allowing us to thoroughly understand the eligible work undertaken by your business. Should we identify any irregularities in your claims, we’ll support you in disclosing all errors to HMRC. We have extensive experience in assisting clients who wish to make a voluntary disclosure of errors in their tax affairs.

Compliance check

Should you receive a compliance check letter from HMRC, we will work with you to prepare a strategy to minimise your potential exposure to unnecessary tax, interest, and penalties.

Future claims

To avoid delays and reduce the likelihood of receiving questions from HMRC, we're here to fully support your business by preparing and claiming R&D tax credits. We can provide you with advice tailored specifically to your requirements, saving you from paying for any extra unnecessary costs. As a regulated firm, we provide advice that you can trust.