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HMRC continue to challenge R&D claims – tribunal updates

Iain Butler looks at two recent tribunal cases where HMRC has challenged R&D tax credit claims, providing insights into how your business can avoid a claim becoming stuck in an enquiry and going into a lengthy tribunal process.

HMRC is showing no intention of slowing down when it comes to challenging R&D tax credit claims. The increased scrutiny along with a significant rise in random enquiries into companies making a claim means you need to be prepared for questions from HMRC. Irrespective of whether your prior claims have been approved or whether you’re a first time claimant, an enquiry can land on anyone’s desk. 

Over the last week, we’ve seen evidence of this in two tribunal cases where HMRC has challenged claims.

About the author

Iain Butler

+44 (0)20 7556 1343
butleri@buzzacott.co.uk
LinkedIn

HMRC is showing no intention of slowing down when it comes to challenging R&D tax credit claims. The increased scrutiny along with a significant rise in random enquiries into companies making a claim means you need to be prepared for questions from HMRC. Irrespective of whether your prior claims have been approved or whether you’re a first time claimant, an enquiry can land on anyone’s desk. 

Over the last week, we’ve seen evidence of this in two tribunal cases where HMRC has challenged claims.

Grazer Learning case

Grazer Learning case

HMRC opened a case against Grazer Learning after being uncomfortable with its software claim where the qualifying project is described in terms of functions and features. 

HMRC needs to understand what code was developed in software claims, and why this code is considered technically challenging to develop. In this tribunal, it was felt that “the work carried out …. at the behest of the Appellant was no more than a novel utilisation of the existing technology in this area or an adaptation of that existing technology, which was readily deducible by a competent professional working in the field”. 

We’ve seen this type of challenge taken to the tribunal before where HMRC ultimately won that case. HMRC believes it will be successful at tribunal and if your claim report is not clear, it’s likely to come back with queries that could delay receipt of your claim benefit.

The Grazer Learning case also shows the dangers of not preparing for tribunal too. Witness statements that would have supported the claimant’s case were disallowed due to incorrect and late filing of the documents. This shows how challenging this stage can be and we strongly believe you must ensure that your claim does not reach this point. 

We offer a free claim review to companies that can check for these issues and highlight any areas where HMRC might open an enquiry.

DNAe Group case

DNAe Group case

This next tribunal reported this week related to DNAe Group where HMRC have pursued another challenge to a company’s SME status. The key point of consideration was if an investor owns more than 25% of the shares, HMRC may consider your business to be a large company and as such, you may not qualify for the more lucrative SME tax credits scheme. Ultimately when making a claim, it’s down to you to prove that your business meets the SME criteria.

In this case, the judge is trying to determine whether the investment into DNAe Group is speculative in which case an SME tax credit claim can be submitted. This tribunal ruling runs to a staggering 21 pages with a forensic analysis of the investment into the business and it concluded that DNAe Group was indeed an SME. If DNAe Group were deemed not an SME, the claim would be deemed to be a large company claim meaning they would receive less benefits. However, as DNAe Group would have been out of time to make an amended return, these claims could have been disallowed.

The SME status rules are extremely complex and we recommend that you should consult with an advisor when the shareholding changes significantly. Buzzacott can review your status position to see if you qualify for the more beneficial SME scheme or need to move into the large company scheme.

How we can help

How we can help

We're here to fully support your business with preparing and claiming successful R&D tax credits that satisfy HMRC requirements.

Making a successful claim takes a nose for detail. When you work with our dedicated R&D tax credits team, you can count on that. Our team has 20 years worth of experience in preparing R&D claims and we know exactly what HMRC wants to see. By working with us on complex claims you will be staying up to date with HMRC policy communications and legislation changes. 

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Get in touch

For a free R&D claim review, call us today on +44 (0)20 7556 1200 or email enquiries@buzzacott.co.uk. Alternatively, fill in the form below and a member of our team will be in touch.

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