The recent spate of nudge letters further proves we’ve entered a new era of compliance.
HMRC sent nudge letters to over 2,000 R&D Tax Relief claimants in January as the agency expands its clampdown on fraudulent submissions.
Nudge letters ask companies to ensure their tax affairs are up-to-date. In the R&D space, they are often precursors to compliance checks. These are lengthy investigations that can delay a company’s tax relief or cash by several months.
The wave of nudge letters is further proof that we have entered a new era for the R&D Tax Relief scheme, one in which non-compliant claims are far more likely to attract punitive measures from HMRC.
What is a nudge letter?
A nudge letter asks you to ensure your tax affairs – including your R&D Tax Relief claims – are up to date.
Nudge letters begin with the following:
“Research and Development (R&D) tax relief – help confirming you are eligible. We are writing to you as you have previously claimed for Research and Development (R&D) tax relief.”
You will receive a nudge letter if HMRC finds an issue with your financial records or suspects you’ve misused the R&D Tax Relief scheme.
Nudge letters give you the chance to update any minor errors in your company accounts. Addressing smaller issues can mitigate lengthier, more time-consuming investigations, which are designed to explore more severe breaches of tax law.
HMRC cracking down
The wave of nudge letters is HMRC’s latest attempt to crack down on fraudulent and abusive R&D Tax Relief claims.
The number of malicious claims has grown in recent times, thanks partly to the proliferation of unscrupulous agents posing as experienced consultants. HMRC estimates that erroneous filings cost the taxpayer £469 million a year.
In last year’s Autumn Statement, Chancellor Jeremy Hunt said reports of abusive claims had led him to cut R&D Tax Relief for SMEs, a move roundly criticised by business groups that has led some startups to accelerate overseas expansion.
HMRC’s actions – which include a steady rise in compliance checks and a spate of threatening letters from the Fraud Investigation Services Unit (FIS) – point to a sea change in HMRC’s policing of the R&D Tax Relief scheme. The agency is now scrutinising claims much more thoroughly, and, as a result, many more businesses are being caught out.
In this new era of compliance, companies cannot afford to take R&D Tax Relief compliance for granted. By this, I mean:
- Knowingly claiming for spurious costs and projects
- Working with unreputable or inexperienced R&D Tax Relief consultants that do not provide free enquiry defence
- Neglecting to submit a detailed technical report that demonstrates your projects’ eligibility to your tax inspector
Companies that want to ensure they are filing compliant claims should work with a reputable R&D Tax Relief provider like GrantTree.
What should I do if I receive a nudge letter?
If you receive a nudge letter, the first thing you should do is make sure your recent tax filings are accurate. HMRC can audit R&D Tax Relief claims filed up to seven years ago, so make sure you examine historical claims for errors and issues.
If you need help checking your previous claims for issues, our R&D Tax Relief experts would be happy to help. They can tell you whether you are likely to face further sanctions from HMRC and can work with you to start preparing your defence.
You should also start preparing for an HMRC compliance check. Also known as enquiries, compliance checks are detailed audits of your previous R&D Tax Relief claims in which HMRC tries to determine whether your projects and their associated costs are genuinely eligible for relief.
Enquiries can last for months or years and be highly disruptive for senior members of your financial and technical teams.
If you want help managing your compliance check, GrantTree’s Enquiry Defence Team is here to help.
Calling on decades of combined experience, our specialist Enquiry Defence Team will manage your enquiry from start to finish, saving you time, protecting your reputation and ensuring you receive the correct outcome.
