As an R&D tax consultant, we specialise in compiling R&D tax relief claims that will be accepted by HM Revenue and Customs (HMRC).
We defend those claims from enquiries, and we do not submit ineligible claims.
However, there are times when HMRC fail to see the merits of an R&D tax relief claim, regardless of how well it is put together.
It is then that the Alternative Dispute Resolution (ADR) process plays a key role in preventing innovative companies from missing out on the funds they deserve.
What is the ADR?
The ADR is a voluntary process wherein a third party acts as a mediator between HMRC and the taxpayer.
Where there is a dispute over the overall validity of an R&D tax relief claim, it may become necessary to escalate matters to the ADR.
This is not something to be done lightly, but is certainly a better option than becoming embroiled in a litigation case.
How does ADR work to resolve R&D tax relief disputes?
One of the downsides of the queries launched by HMRC is that they rarely involve speaking directly to a person.
Most query notices are letters, some of which feature anonymised email addresses.
This can make clients feel more disconnected from the person or team reviewing the case.
While there is the option to respond to the queries raised by HMRC, they do not always yield positive results.
Fundamentally, there can be a disagreement over the exact definition of an appreciable improvement in the field of science or technology.
Ongoing queries are stressful for all involved in the R&D tax relief claim, whether they are accountants, businesses or R&D tax consultants.
This is due to the ever-present threat of fines and penalties if the defence is unsuccessful and HMRC deems the claim to be ineligible.
ADR offers a way to reset the situation when the defence against the queries has not yielded the desired results.
As an impartial third party, the ADR opens the lines of communication between HMRC and the claimant, allowing dialogue that would otherwise not be possible.
This is a good opportunity to understand in detail any reservations that HMRC have about the claim while also being able to field dynamic rebuttals that address the concerns in real time.
How to prepare for ADR
As ADR is the chance to fully demonstrate the eligibility of the claim, it is important to go in prepared.
Anyone partaking in ADR should have all the relevant documentation, including the R&D tax relief claim, any supporting information, the submitted defences of the claim, as well as all correspondence from HMRC
ADR is typically seen as the last step before a full tribunal and is the last opportunity to resolve the issue without incurring additional costs.
Does ADR always work?
Unfortunately, ADR is not guaranteed to work, and litigation may still be necessary.
Likewise, ADR agreements are only legally binding if agreed to by both parties.
Ultimately, ADR is a time-consuming process that typically comes at the end of a lengthy back-and-forth with HMRC’s enquiry team.
Not every client will want to endure the ordeal, and some may surrender the claim and take the penalties rather than drag the situation out further.
Our work is designed to minimise the chances of having to deal with ADR, as we always submit compliant R&D tax relief claims and defend claims against any queries.
The best way to prepare for ADR is to improve record-keeping so that evidence is ready no matter what happens.
As an R&D tax consultant, we can show you how to improve your clients’ record-keeping to better support their claims, defend from queries, and prepare for ADR should it be necessary.
