HMRC Enquiries Are Rising. Will This Impact Your R&D Tax Credits Claim? (image of HMRC building)

HMRC Enquiries Are Rising. Will This Impact Your R&D Tax Credits Claim?

The number of HMRC enquiries into R&D Tax Credit claims has spiked over the past few months. But what’s behind this? And what does it mean for claiming companies? 

Since the start of the year, we’ve noticed a sharp increase in the number of R&D Tax Credit enquiries launched by HMRC. This rise seems to transcend specific industries and technologies.

Though, as we would expect, enquiries appear to be focusing on companies that have filed larger claims. And those that have filed without expert help.

Here’s what you need to know about compliance checks and what this spike means for your business.

What is an HMRC enquiry?

In case you don’t know already, an enquiry or compliance check is where HMRC launches an investigation into your R&D Tax Credit claim. 

Enquiries are often preceded by a nudge letter, in which HMRC asks for more information about your filing.

The purpose of an enquiry is to determine whether your company is actually eligible for R&D Tax Credits. And to work out whether you’ve claimed too much government funding.

Facing an enquiry is challenging work. Even if your claim is 100% accurate, your enquiry could last several weeks and delay your cash credit or tax relief by up to six months.

That is an extremely long time if you’re a growing business. Especially now that the UK economy is starting to recover.

HMRC on the march

Suffice it to say, HMRC’s enquiry ramp-up should be cause for concern. Particularly for businesses whose claim is not protected by a free enquiry resolution service, like the one offered by GrantTree.

But what is behind this surge?

For some years, HMRC and the government have been trying to tackle so-called ‘abusive’ R&D Tax Relief claims. These are fillings that are designed to extract money from the scheme illegally – as was the case in this widely-covered story from 2020 or to take money from the government without contributing to UK innovation or the country’s international competitiveness.

This concern recently drove the government to reinstate a PAYE Cap on payable tax credits, which targets artificial corporate structures formed for the sole purpose of acquiring government funding. It’s this same worry that is likely driving HMRC to increase the number of enquiries and nudge letters.

From a practical perspective, we are also seeing the fruits of the government’s investment in 1,300 new HMRC staff.

Like many public sector institutions, HMRC’s resources have rarely matched the scale of its remit.

But with hundreds of new staff joining its ranks, many of whom are first-time tax inspectors looking to prove their mettle, the organisation is now much better equipped to tackle fraud. And to launch proceedings against non-compliant companies.

How does the rise in HMRC enquiries affect me?

The rise in enquiries and nudge letters is relatively bad news for all companies claiming R&D Tax Credits. Still, the news is far worse for some than others. Because your chances of being engulfed in an enquiry depend on your situation.

Filed your claim already?

If you have already filed for R&D Tax Credits, and your claim was large, technically complex, or compiled by someone with a limited understanding of the scheme, you are now much more likely to face a difficult encounter with HMRC. 

If you’re worried that your company is in this situation, you are welcome to contact GrantTree for a free claim assessment.

Our tax and technical experts will be able to assess the strength of your claim, your likelihood of an HMRC enquiry, and offer a route forward.

Haven’t filed yet?

If you haven’t filed yet, there are a few things you can do to minimise your risk of an enquiry.

1. Triple-check your claim

Go through your claim and make sure you’re only claiming for qualifying expenditure and that your projects satisfy the government’s definition of R&D for tax purposes.

2. Submit a technical narrative 

A technical narrative is a two-to-five page document explaining your development work in a language HMRC’s tax inspectors can understand.

Including a technical narrative strengthens your claim by demonstrating that you meet HMRC’s definition of ‘R&D’. 

It also helps to validate your claim size by showing the tax inspectors the scale of your development work.

You can read more about writing your technical narrative here

3. Work with an R&D Tax Credits specialist

Undoubtedly, the best way to avoid an HMRC enquiry is to work with an R&D Tax Credits specialist like GrantTree. 

Our team of tax and technical experts have filed more than 2,000 successful tax credit claims while boasting one of the lowest enquiry rates on the market. 

Protect your company from HMRC enquiries

If you would like to talk to a GrantTree representative about filing your R&D Tax Credit claim or our enquiry defence service, just get in touch. Our team is standing by to help!