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As HMRC has increased the scope of its review process and taken to viewing R&D tax relief claims with more scrutiny, it is little wonder that more innovative businesses are staring down the barrel of enquiries.
In some cases, perfectly valid R&D tax relief claims can be subject to the Mandatory Random Enquiry Programme (MREP) and the original report will need to be defended through an, at times, lengthy process of reiterating the validity of the claim.
There are some instances where HMRC do identify error or fraud and the enquiries may not end so positively for those who submitted the claim.
Whatever type of HMRC enquiry is holding back an innovative business, seeking the support of a trusted R&D tax consultant is a good idea.
How do HMRC enquiries get resolved?
As you may expect, there are only two real outcomes to an enquiry – it gets rejected or upheld.
The nuance lies in how these outcomes manifest and what they mean for the R&D tax relief claim.
Where an enquiry is being launched into a fully compliant claim, the outcome should be the full overturning of the enquiry and an awarding of the relief in full to the innovative business.
However, even when enquiry defence is successful, there is a spectrum of how the issue is resolved.
There may be some instances where ineligible costs have been included in a claim and these will need to be removed during the enquiry process.
One of the most common roadblocks to an enquiry resolution is an inelegant technical narrative.
In these cases, innovative businesses or accountants have correctly identified that R&D work was conducted, and may have even correctly assigned costs for it, but they have struggled to articulate it in a way that HMRC will recognise.
In these cases, it is necessary to rework the narrative so that the innovation is centralised and non-qualifying activities are removed.
However, there are times when R&D tax relief claims that are compiled by those with less experience or understanding will be invalid.
What happens if I am trying to defend an ineligible R&D tax relief claim?
The best case scenario would be to brace for the full repayment of any relief that has been claimed through an ineligible R&D tax relief claim.
If a claim is ineligible then the enquiry will be upheld and those who submitted the claim will face further questions.
Depending on how these questions are answered, it may be necessary to pay a penalty the amount of which will vary depending on the amount of relief inaccurately claimed.
What support is there for enquiry defence?
In cases where valid claims are subject to an enquiry, we can work to ensure that the full amount of eligible relief is preserved.
If any adjustments are needed to make the claim valid, we will advise on these and help clarify with HMRC where problems have arisen.
In the event that we consult on an ineligible claim, we will advise that this is the case while
providing guidance on how to answer the remaining questions that HMRC have.
Our goal in this instance would be to lessen the risk of penalties, but there is nothing that can be done to retain relief that was paid out unfairly.
Ultimately, any decision on a rejected claim can subsequently be overturned on appeal, either by HMRC Legal or Alternative Dispute Resolution (ADR).
We are happy to take on these cases that have reached this far if we come to believe that they are being wrongly rejected.
This will involve a “View of the Matter” letter from the inspector/enquiries team that sets out the reasons for their rejection of the claim and full repayment.
We can provide supplementary evidence and narrative to aid this appeal process.
We are working to spread greater awareness of the R&D tax relief scheme so that fewer ineligible claims are submitted and fewer businesses face the frustration of ongoing enquiries.
We are honest and upfront about the likely outcome of all enquiries on which we consult so you can be sure of your options at the earliest opportunity.
For enquiry support that keeps innovative businesses compliant with HMRC, speak to our team today.
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