R&D tax credits: what is an HMRC enquiry?
What is an HMRC enquiry?
The government’s R&D tax credit incentives were introduced to help grow the UK economy and reward innovative businesses. HMRC manage and administer the government R&D tax credit incentives. Sometimes this can include an enquiry.
When you submit an R&D tax credit claim to HMRC, HMRC should swiftly process your claim – they try to work to an internal 28-day deadline. In most cases, a simple desktop review of the claim documents will be sufficient for HMRC to be satisfied and process your R&D tax credit claim.
Sometimes, however, HMRC asks for more information to clarify any questions. This process is known as an enquiry.
Why do HMRC open enquiries?
The reason why HMRC might open an enquiry can vary. For example, their reasoning might be related to your company’s change in your circumstances.
HMRC may have some questions about the nature of your R&D work: perhaps about your industry or a particular technology you were working with.
What is an HMRC compliance check?
A compliance check or ‘enquiry’ is essentially an investigation into your R&D Tax Credit claim.
They generally happen when the tax inspector reviewing your tax credit submission finds a discrepancy in your financial data or is unsure whether some aspect of your development work is eligible for funding.
Or is unsure whether some aspect of your development work is eligible for funding. Some enquiries are also launched for random sampling purposes.
To clear up their concerns, your inspector will write to you with a list of questions designed to collect more financial and technical data about your R&D.
Enquiries generally involve multiple rounds of questioning and can take weeks, months, and sometimes even years to resolve.
But while facing an enquiry can be extremely inconvenient, they are a vital mechanism for projecting the R&D Tax Relief scheme for abusive claims and ensuring that UK taxpayers receive value-for-money.
Why does HMRC launch enquiries?
At HMRC nothing raises a red flag quicker than numbers that don’t add up. If the figure in your claim report – the document containing a breakdown of your R&D costs – don’t match those in your corporate accounts, there’s a good chance your tax agent will initiate an enquiry to clear up the discrepancy.
Insufficient Proof of eligible R&D
To claim R&D tax credits, you must prove that your development work meets the government’s definition of eligible R&D.
You deliver this proof in your technical narrative, demonstrating that you pursued a genuine technological advance by tackling scientific or technical uncertainties through systematic experimentation.
If you fail to prove your eligibility – for example, by talking about business challenges in your narrative rather than technical ones HMRC will launch an enquiry to investigate whether your development work truly qualifies for R&D Tax Credits.
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