Are you prepared for the ramp-up in R&D Tax Credit Investigations?

R&D Tax Claims are at an all-time high, with over 80,000 successful claims made from 2019-20 up 16% year on year. Unfortunately, this has meant that the number of spurious claims has also seen a dramatic rise.

HMRC announced earlier this year that they were going to crack down on abuse of the R&D tax credit scheme, around the same time drafting in around 100 new compliance officers.  This can only mean one thing for businesses claiming R&D Tax Credits...more scrutiny.

So should you be worried about this sharp rise in enquiries? Well, we are here to answer that...

What is an HMRC R&D Tax Credit Enquiry?

To put it simply an enquiry is where HMRC launches an investigation into your R&D Tax Credit claim. 

The purpose of this is to determine whether your company is actually eligible for the claim or if your company has been claiming too much government funding. These investigations can take weeks, months and sometimes years and even if your claim is 100% accurate your cash credit or tax relief could be delayed by up to 6 months.

Unfortunately, if it is determined that your claim is bogus you will be subject to penalties and interest, as well as having to pay back any claims deemed to be spurious. 

Bearing in mind that they won’t just investigate the current year but could open an enquiry for claims going back 20 years and with the average yearly claims being over £50,000 you can see how the fines start adding up.

So why are HMRC ramping up enquiries?

HMRC have the responsibility of not just handing out generous R&D Tax Credits but also in protecting the public purse and over the last few years there has been a significant rise in “abusive claims”

These “abusive” R&D Tax claims are made to circumvent the rules and gain money from the scheme illegally, as in the high profile case where three men were jailed for a £30 million fraudulent claim.

This concern recently drove the government to reinstate the PAYE cap on R&D claims for SME’s and it is very likely that these same concerns are to blame for the rise in HMRC enquiries. 

How can you best protect yourself against an unsavoury encounter with HMRC? 

Well, the short answer is, work with a R&D Tax Credits specialist such as Recoup Capital. Our dedicated team of tax and technical experts have submitted more that 1000 successful claims across many different industries. 

We have an expert knowledge of how the legislation works and therefore we have specific processes in place to ensure that HMRC are satisfied your claim is legitimate, avoiding the need for scrutiny in the first place.

All our claims are submitted by our chartered tax advisers who submit the claim against their name, their relationship with HMRC is sacrosanct,  it has to be thorough and robust. All submissions will be structured to limit the questions from HMRC, and all claims put forward will be structured to substantiate any questions HMRC may have, hence our 100% success rate. 

You can also submit a technical narrative alongside your claim, this is a 2-5 page document allowing you to explain in more detail the nature of your R&D work in a way that the tax inspectors at HRMC can understand. 

It will help to validate your claim twofold, firstly by strengthening the narrative behind your claim and secondly by showing the tax inspectors the scale of your development work.

To unlock a higher level of rebate and to ensure you don’t get into trouble for making a claim, you do need a specialist to look at this for you. There are plenty of software applications out there at the moment and even accountants are saying they can complete this work.

Well, they may be able to, but they will not be able to maximise your claim and safeguard you against HMRC. I generally go by the rule; you get what you pay for. There are always corners we can cut, but there is then generally a price to pay.

So to maximise your R&D claim, please contact us.