As an R&D tax consultant, we know that many of those claiming R&D tax relief are concerned about the impact of enquiries.
Since HM Revenue and Customs (HMRC) became more proactive with verifying the legitimacy of R&D tax relief claims with the advent of the Mandatory Random Enquiry Programme (MREP), among other measures, there has been a question haunting accountants and innovative businesses:
How far back in time can HMRC query R&D tax relief claims?
Following a recent tribunal ruling, we now know the limitations of HMRC’s scope of enquiries.
Are R&D tax relief claims at risk from historic enquiries?
The answer to that question has always been a tentative ‘no’.
The lack of legal precedent prevented any confidence in ruling out the possibility of HMRC conducting historic enquiries, particularly upon discovering that more recent R&D tax relief claims were erroneous.
Fortunately, the outcome of the tribunal hearing of Realbuzz Group LTD v The Commissioners for HMRC has revealed that HMRC do have to adhere to the deadline for a discovery assessment.
In the Realbuzz case, the company submitted an amended R&D tax relief claim for its accounting period ending 30 April 2020 on 31 March 2021.
HMRC challenged a claim submitted for the company’s 2021 accounting period and discovered that a number of projects were ineligible.
Most notably, some of the projects overlapped with the previous year’s claim, and it was clear that the 2020 claim should also be considered ineligible.
However, HMRC did not challenge that earlier claim before the 30 April 2022 deadline and instead waited until 1 June 2023 to issue a discovery assessment.
With a £335,453 R&D tax relief claim on the line and the threat of interest on the proposed repayment, it is understandable why this became a contentious point for Realbuzz and HMRC.
Worryingly, HMRC predicated a defence of its inactivity on the idea that the officer reviewing the claim lacked the experience to determine the validity of all projects and was unable to quantify the precise amount of overclaimed relief.
It may come as little surprise that the judge ruled in favour of Realbuzz, given that an officer would not have needed to be an expert in the field to have raised a query within the appropriate deadline.
As HMRC had sufficient evidence to realise that the R&D tax relief claim warranted further examination, it should have done so immediately rather than wait to launch a historic enquiry a full year after the deadline.
What does the tribunal ruling mean for the future of R&D tax relief?
It means that those making R&D tax relief claims can breathe a sigh of relief.
Historic enquiries are not valid even in cases like this one, where a claim was obviously erroneous.
Just as those filing R&D tax relief claims have to do so within strict deadlines, HMRC are bound by similar rules.
What this ruling should not do is pave the way for careless filings in the hopes that HMRC do not notice or care, and then wait too long to question things.
Instead, innovative businesses can rest assured that the money reclaimed through R&D tax relief claims is theirs to use and will not be demanded back later down the line.
With the threat of historic enquiries thoroughly disarmed, now is the time for accountants to reassure clients that R&D tax relief is reliable for those who conduct cutting-edge work.
Ultimately, the best way to handle R&D tax relief is with a claim that can withstand an HMRC enquiry, whenever it gets launched.
Our expert team of R&D tax consultants are on hand to help you support your clients so that they can keep pushing towards a more innovative future.
