Can accountants help clients avoid enquiries when handling R&D tax relief claims?

Accountants looking to help their clients with R&D tax relief claims may have heard that enquiries are inevitable.

To an extent, that is true and it is not possible to know for certain whether even a valid R&D tax relief claim will be subject to an enquiry or not.

However, only three per cent of our R&D tax relief claims are subject to an enquiry compared to the industry average of 20 per cent.

This shows that there must be something that can be done to minimise the risk of enquiries.

What causes an R&D tax relief claim to get flagged for enquiry?

There are some distinct types of enquiry and they need to be approached in different ways.

The simplest to understand is the Mandatory Random Enquiry Programme (MREP).

As the name suggests, this is an entirely random system by which an R&D tax relief claim will be flagged for an enquiry and will need to be defended accordingly.

The existence of the MREP is why no accountant or R&D tax consultant can claim to never have any R&D tax relief claims subject to enquiry and any who attempt to make this claim have either not submitted enough claims yet or are lying.

Nothing can be done to prevent an MREP, but they can be resolved effectively, provided the R&D tax relief claim was valid and well put together.

The other type of enquiry is launched by an HMRC agency.

This means that a human from HMRC has noticed an oddity in an R&D tax relief claim and would like to investigate it further.

This might be the inclusion of an illegible cost, a calculation that seems to apportion certain costs higher than would be expected, or a project that may not seem to qualify.

Getting an enquiry of this nature does not automatically mean the R&D tax relief claim will be rejected, but care needs to be taken when considering how to defend it.

How are R&D tax relief enquiries managed?

The first thing that needs to be established is whether the enquiry can be challenged.

This is done by assessing HMRC’s concern and proving it valid or invalid.

For instance, HMRC may be cautious about a higher than expected apportionment of energy costs, but if the project involves high-powered machinery that uses a lot of power, then it should be possible to prove that this calculation makes sense.

The most common issue is that the technical narrative fails to show why the project is R&D.

Too often, technical narratives focus on routine or aesthetic changes rather than on the true innovation that is taking place.

This can lead to HMRC wanting to reject a claim outright, as it is not apparent why the work should count as R&D.

While it is possible to handle an enquiry as an accountant, it is wise to seek guidance from an R&D tax consultant.

Our team is adept at managing R&D tax relief enquiries and can help advise on the best course of action.

This may result in a claim being wholly defended, some edits being made to remove ineligible costs, or managing the situation to avoid the assigning of penalties – depending on the validity of the R&D tax relief claim in question.

Enquiries require careful consideration to handle, so expert support is always advised.

Beyond this, we can help enhance the creation of R&D tax relief claims to reduce the likelihood of enquiries occurring.

As they are now a staple of R&D tax relief claims, enquiries need to be managed effectively and with confidence to ensure that innovative businesses continue to get the support to which they are entitled.

For R&D tax relief enquiry support that can restore your confidence, speak to our team today.

Jo Edwards