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Addressing and resolving HMRC R&D tax enquiries

Author: Tom Mason

We know from experience that HMRC enquiries are enough to put your clients off their stride, particularly in the challenging field of R&D tax reliefs 

Enquiries are on the rise as a result of the enhanced push for compliance by HMRC – with an estimated 20 per cent of claims now facing challenges, according to a 2024 House of Commons report – up from just one per cent historically.  

We are now finding that more accountancy firms are struggling with advising clients on R&D tax without specialist support – a direct result of the increased risk of both random and targeted enquiries.  

HMRC’s new enquiry system 

Non-compliance and error in the R&D tax claims system became a hot-button issue for HMRC in 2023, when data suggested that up to 16.7 per cent of the total paid out on claims in 2020/21 were fraudulent or non-compliant.  

It has implemented a new regime of checks on claims, including: 

  • Random checks as part of a Mandatory Randon Enquiry Programme (MREP) 
  • Enquiries based on statistical modelling 
  • Targeted enquiries into discrepancies or indicators of non-compliance 

This means that even fully compliant claims may be investigated, causing delays for your clients and an experience which may put them off making legitimate claims in the future.  

The other issue which may be facing your clients is that around two thirds of R&D tax claims are paid before any investigation into the claim, meaning that many businesses are being ordered to repay potentially large sums.  

Navigating an enquiry 

An enquiry will generally be raised by the R&D tax relief scheme’s dedicated Anti-Abuse Unit (AAU).  

These are usually handled on behalf of HMRC by the Individual and Small Business Compliance (ISBC) Directorate or the Wealthy and Mid-sized Business Compliance (WMBC) Directorate. 

Your client may be asked to supply additional information regarding their claim and demonstrate that the expenditure included within the claim meets the requirements of the scheme.  

This may be used in conjunction with the original submission to decide in favour of, or against, their claim. This means that the initial claim must be watertight, but also that your client needs to have details of relevant expenditure and activities at their fingertips to best overcome the challenge of an HMRC enquiry.  

Resolving a dispute 

In many cases, HMRC will approve your client’s claim following an enquiry – particularly if it is a result of MREP.  

However, there is still the possibility that the claim will be rejected. If they wish, your client can appeal against this decision by alerting HMRC that they do not agree with its findings. 

At this stage, there are generally three options: 

  • Informal discussion – HMRC may be open to discussion with your client, particularly if its reasoning is unclear 
  • Independent Review – An officer independent of the case reviews your client’s claim and reaches an independent conclusion 
  • Alternative Dispute Resolution (ADR) – Your client may turn to mediation or adjudication to reach a decision while maintaining a working relationship with HMRC. 

If these solutions are ineffective, your client may decide to take the case to a Tribunal. Although a tax Tribunal can be a nerve-wracking experience for your client, we can continue to advise you and your client on their position from an R&D perspective.  

We can provide expert advice and practical support for you and your clients when an HMRC enquiry looms over an otherwise compliant and successful R&D tax claim 

For tailored guidance, please contact a member of our advisory team today to discuss how we can help you.