A growing number of businesses are receiving letters from HMRC’s Fraud Investigations Services Unit (FIS) stating that they have fraudulently claimed money from the R&D Tax Relief scheme.
In this blog, I will explain what these letters are, what they mean for your business, why HMRC is sending them, and what you should do next to protect your claim.
What are the FIS letters?
A large number – hundreds, we believe – of small and medium-sized businesses have received letters from the FIS, a team of experienced officials tasked with investigating high-value tax fraud.
The letter will state that your claim:
“Triggered an alert on our systems and has caused HMRC to believe that you have fraudulently claimed money to which you were not entitled. Therefore, HMRC has blocked payment of this money, to which we believe you are not entitled”.
The letter then asks for a range of information relating to your company and its R&D Tax Credits filing, including a breakdown of the sum claimed by relevant categories and an explanation of the scientific or technological advances you were seeking.
The FIS letters are similar to those issued during a compliance check. Compliance checks, also known as enquiries, also known as enquiries, are HMRC’s process for investigating the eligibility of a company’s R&D Tax Relief claim.
What does An FIS letter mean for my R&D Tax Relief claim?
Clearly, the FIS letters use serious language. However, receiving a letter does not necessarily mean that HMRC believes your company has actively committed fraud.
Instead, it’s possible that your company happens meets certain criteria which put it into a category of business that the FIS believes is more likely to submit fraudulent claims. Indeed, the FIS may be sending out letters at random as part of a sampling exercise to estimate the true scale of exploitation.
While HMRC has remained relatively tight-lipped on the scope of the FIS investigation, we believe it primarily focuses on SMEs in the software space.
None of that is to say that receiving an FIS letter isn’t significant. It likely signals the start of a lengthy (perhaps months-long) investigation of your R&D Tax Credits claim, during which FIS inspectors will scrutinise your technical work and financial data to determine whether your filing is in any way fraudulent.
The investigation could delay your cash credit or tax relief by many weeks, so be sure to plan accordingly.
This additional scrutiny means that even companies that don’t receive an FIS letter may have to wait longer for their claims to be processed.
If you want help during this investigation, our experienced Enquiry Defence team is standing by to defend your claim.
Why is the FIS Sending out letters to R&D Tax Relief claimers?
The FIS intervention stems from a long-standing concern, held by both the government and HMRC, that the R&D Tax Relief scheme is subject to widespread fraud. The perpetrators: ineligible businesses and unscrupulous consultancies filing invalid claims on behalf of their unsuspecting clients.
HMRC estimates that 5% of all R&D Tax Credits claims are fraudulent, costing the taxpayer close to £500 million. The majority of fraudulent claims are made to the SME R&D Tax scheme, which is why FIS is concentrating its investigation on small and medium-sized companies.
In its 2022 annual report, HMRC revealed it had detected “a pattern of irregular R&D claims in April 2022” and was deploying a range of “additional measures” designed to detect and prevent further abuse. These measures included establishing a threat risk assessment process for all research and development claims, implementing additional payment identification and verification controls for payments, and, it seems, involving the FIS.
During July’s Research and Development Communications Forum (RDCF) – a regular meeting between HMRC officials and representatives from reputable consultancies like GrantTree – the tax authority confirmed that the letters from the FIS were part of ongoing efforts to tackle fraud. The authority also committed to releasing more information about the investigation in due course.
GrantTree will relay whatever insights we glean from HMRC. To stay up-to-date, sign up for our newsletter, and we’ll deliver the last news from HMRC straight to your inbox.
What should I do once I receive My FIS letter?
Like an R&D Tax Credits enquiry, the key is to provide HMRC with the information it’s looking for as soon as possible.
You’ll have 30 days from the date the FIS letter is generated to respond to HMRC, but, it’s a good idea to respond as quickly as you can. The sooner you can prove your claim is legitimate, the sooner you can bring the FIS investigation to a close and receive your money.
What happens after you respond to the FIS varies. If the service is happy with the information you have shared, they may proceed to pay out your relief or transfer your claim back to HMRC’s ‘regular’ R&D unit for processing. If the service do not believe your claim is valid, the they may reject it outright or transfer it to the R&D unit, which could launch an enquiry.
Ultimately, though, if your claim is legitimate and accurate, and you are able to provide the information that the FIS requires, you should still expect to receive your R&D Tax Relief, albeit after a delay.
If you have any questions about your letter or would like some expert advice replying to HMRC, our specialist Enquiry Defence team is here to help.
Just drop us a line and we’ll be right with you.