Top five tips for avoiding an R&D enquiry

With the Research and Development (R&D) scheme rising in popularity over the years and offering cash payments to the claimant company, it’s no surprise that it has been targeted by fraudsters. Last year alone, HMRC predicted around £49 million of fraud occurring within the scheme. As a result, HMRC has employed over 1,000 new compliance staff to tackle fraud and error in the scheme. 

Tax inspectors are now tasked with identifying fraudulent claims. However, HMRC seems to be picking up genuine claimants and are opening a significant number of checks based on automated risk checks or random selection. 

Enquiries are bad news for claimant companies. The process can take months to complete, which will require a significant amount of effort and time to be resolved. Unfortunately, even if you successfully defend your claim, an R&D enquiry can still delay your cash credit by months or even years. Although some checks are issued randomly or based on the level of qualifying spend, claimants can make several red flag mistakes that trigger an enquiry.

Our top five tips to reduce R&D compliance checks

1. Use accurate financial information – Inconsistencies in data or errors in calculations is one the easiest way to trigger an enquiry. Go through your figures with a fine-tooth comb, including your P&L, tax computations, and CT600. HMRC will have an electronic version of your accounts, which allows for the use of automation to spot inconsistencies. 
2. Try and avoid using guesstimates by using internal record-keeping to support your claim – Although this is not a requirement of the scheme, HMRC is clearly concerned about blanket assessments, and the new online form now requires companies to split their claims by project. Maintaining up-to-date record keeping will ensure that there is supporting evidence for each qualifying cost. This will allow you to submit a claim that is more accurately related to the costs of your R&D activities. 
3. Check your SIC code – This might sound like an odd request, but if your SIC code covers an industry that typically has a low R&D intensity, this might increase the risk of an enquiry. If your claim is in a sector that has a lower R&D intensity or is related to activities outside the normal business activities for the sector, this needs to be explained to HMRC. 
4. Ensure you have the right competent professional involved in preparing the R&D claim - Collect data from direct R&D staff members who were involved in the project. It’s tempting to defer to project managers or commercial staff, but HMRC wants to know if the claim was assessed by members who were directly involved in the R&D project to collect data for the R&D scheme. You should also consider whether HMRC might challenge the experience or knowledge of your team and to address this point in the claim report.  
5. Provide sufficient technical information – The technical narrative must provide sufficient evidence to HMRC that the work being undertaken was qualifying. This should include clear examples of advancements and uncertainties. From now on, companies will be required to prepare a description covering 50% of the qualifying costs; otherwise, the new online portal will block your claim. This may be a step up from prior claims so companies need to be ready for the new online form that will be mandatory from 1 August 2023.

How we can help

Our expert advisors have experience dealing with HMRC to help you navigate the changing R&D rules and protect you from an HMRC enquiry. Our highly qualified team will work with you to prepare your R&D claim. We will make your R&D claim fully compliant with all the latest legislation to create a strong R&D report that will explain your development work in a language that HMRC’s tax inspectors will be familiar with to reduce the chance of an R&D enquiry. 

If your existing claim is under R&D enquiry, we can help you to resolve this quickly and efficiently, resulting in minimum disruption to your business.

Get in touch

If you would like to speak to one of our R&D experts to find out more about how we can help, please get in touch via the form below.