Over the last year or so, there has been an increasing level of HMRC activity focusing on R&D claims that they’ve received. Broadly speaking, this activity falls into four categories:
- Claims selected for formal enquiry at random
- Targeted formal enquiry where a specific issue has been identified
- “Fraud Investigation Service” letters stating that HMRC believed the recipient had fraudulently claimed money to which they were not entitled
- “Nudge” letters sent to thousands of companies that have claimed R&D which, HMRC say, are targeted to sectors or types of claim where HMRC has identified common errors.
R&D ‘Nudge’ letters
We have recently become aware of another type of nudge letter where the onus is put firmly on the Company Director to ensure that they understand what has been submitted on their behalf and that they are happy that an accurate claim has been made. The letter states that the process “is not a compliance check into your Company Tax Return”, although the heading is “Check your claim for Research and Development tax relief” – so one could be forgiven for thinking that it was formal enquiry.
The letter gives the recipient a series of questions to ensure that all of the information provided in the claim is “complete and correct”. These include:
- Have you read and understood the HMRC guidance on R&D?
- Have you considered the conditions for making an R&D claim? Are you happy that the project is seeking an advance in the field of science and technology?
- Do you understand what you’re claiming for?
- Who has helped with the supporting R&D report and are they qualified to do so?
- Have you read the R&D report, and do you agree with its contents?
- If you’re working with a third party to make a claim, have they answered your questions satisfactorily?
- Does this claim seem too good to be true?
These questions seem perfectly reasonable, and you should as a matter of course be asking yourself or your advisor these questions. You should expect an advisor to provide a copy of the R&D report and any supporting cost schedules before they are submitted to HMRC. Otherwise, how can you know that the claim is reasonable? A good advisor ought to be able to provide a clear explanation of what the claim consists of and how it meets the R&D criteria.
A reminder for Directors
It is clear from this group of questions that HMRC are reminding Directors of their responsibility in respect of R&D claims (and, indeed, any tax claim). A company may have engaged a third party to help prepare the claim but, ultimately, the Directors need to be sure that the claim being made on their behalf is accurate.
We know that our clients get cold called a lot by R&D “specialists” stating that they can get back thousands of pounds in unclaimed R&D relief. But I would recommend that you exercise professional scepticism around some of the marketing statements that these companies use. This most recent activity from HMRC should serve as a reminder that although a third-party R&D company may have encouraged you to claim, you still have a responsibility to check that you understand what is being claimed for and what is being submitted on your behalf.
Our advice is to always speak to a trusted advisor. Myself, or another member of the BHP R&D team, would be happy to review any claims that you’ve already made and help you with any existing or future R&D claims. Get in touch by emailing james.clark@bhp.co.uk or calling 0333 123 7171.
