Increased HMRC Scrutiny of R&D claims

HMRC are increasing scrutiny of R&D claims - understand what this could mean for you.

HMRC are increasing scrutiny of R&D claims - understand what this could mean for you.

It is becoming clear that HMRC are increasing scrutiny of Research and Development (R&D) claims. R&D tax relief is a key part of the Government’s strategy for increasing investment in R&D, but at the same time HMRC want to ensure that claims for this support are correct. HMRC have invested in additional resources to check the accuracy of R&D relief claims. As a result, we are expecting to see an increase in ‘nudge’ letters issued as well as enquiries being opened into R&D claims. This article discusses how companies can manage their R&D claim process and prepare to deal with any post claim questions from HMRC.

Who is this relevant to?

Although HMRC may initially target specific groups that they perceive to be higher risk, this article is relevant to anyone currently claiming, or considering claiming, R&D tax relief.

Why is this important?

Now, more than ever, it is critical to ensure that you can demonstrate the accuracy of any R&D claims submitted, and that you are prepared to respond to any questions that HMRC may ask on review of the claim. Failure to do so could result in a longer, more detailed enquiry which will require significant resource and delay receipt of any payment. Furthermore, if any errors are identified then you may also be liable to penalties in addition to a reduction in the benefit received.

What action should be taken?

To ensure that you can demonstrate the accuracy of any R&D claim we recommend the development and documentation of a preparation process that gives consideration to the following points:

  • What information is currently captured by the business, is it accurate and how has it been used to prepare the claim?;
  • What real-time testing and controls are in place? Is a full audit trail available?;
  • Is the claim methodology fully documented and consistently applied?;
  • Who has been involved in preparing the claim and what level of input have they provided? How do you ensure the right level of input from technical and tax teams?;
  • What supporting evidence is prepared and is it retained on file?;
  • Does the claim comply with all legislative requirements?; and
  • Is there a record of any advice taken on the preparation of the claim?

To mitigate against the risk of penalties being charged, you need to be able to demonstrate you have taken reasonable care in preparing your claim. Claims under both the R&D expenditure credit and the small or medium-sized enterprise schemes are made under Self-Assessment, meaning that the claimant is ultimately responsible for their claim. If using an adviser, then you need to assure yourself of the quality of the advice being provided and that the information provided to the adviser is fully representative of the activities being undertaken by your business.

It is not possible to eliminate the risk of HMRC enquiring into a claim, however these steps will ensure that the company is well placed to respond to any questions and minimise the risk of any penalties being charged for incorrect claims.

If you have any questions on these changes and what they may mean for you we would be happy to discuss in more detail. The Innovation Reliefs and Incentives (IRI) team at KPMG in the UK provides a wide range of services to support clients throughout the R&D claim process including existing claim review, dispute resolution and full claim preparation support.