What does a friendly HMRC enquiry letter look like?

Innovative

HMRC has different kinds of letter that they send when enquiring into a tax credit claim. Some of those are friendly. Others not so much. For people who are not acquainted with HMRC, it can be hard to tell the difference…

Here’s an attempt to dispel that mystery, to ever so slightly lift the curtain on this exciting part of the claiming process. Perhaps I’m over-selling it a little. Ahem. Anyway, here’s a glorious HMRC letter, of the friendly kind, in full.

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Note: if you want to ring HMRC up, don’t use the number in those letters, as that will go to a specific person’s phone at the Leicester R&D Unit. Instead, use this page to figure out which unit applies to you, and this page to find their number.

Here is the text, so that Google can index it and so that, therefore, you might find it if you received one of these letters.

Page 1:

Dear Sir

Please find enclosed a copy of a letter sent to your agent in connection with the company’s claims to Research and Development relief for the accounting periods ending [date] and [date].

If you choose to contact us about this, you need to quote the case reference [ref] and any other reference shown above. If you write, you need to use the address shown above and if you send documents you must tell us if you want them returned.

Yours faithfully

Page 2:

Dear Sir

[ref] – Accounting Period End Dates [date] & [date] (as amended)

Thank you for submitting the R&D claim and amended returns for the above client. I would like to informally enquire into the above accounting periods. Please let me know if you wish form to do this on a formal basis.

Instead of asking for further written information, I would like to arrange a meeting at the company’s premises to discuss the R&D claim and the scientific advances made by the company in both years. The company’s competent professionals should be in attendance. I have read the report submitted by GrantTree Ltd and have some further questions.

I currently have [date] or [date] available, and would prefer an [time] start, although this is flexible. Please can you contact me with regards to which date is suitable, or to discuss availability should these dates be inconvenient?

I look forward to hearing from you.

However you choose to contact us you need to quote the case reference [ref] and any other references shown above. If you write, you need to use the address shown above and if you send documents you must tell us if you want them returned.

Yours faithfully

So what does it mean and what makes it friendly?

The first page can be ignored safely. It is basically HMRC sending you a letter to inform you that they’re sending you a letter. I wish that was exceptional behaviour, but it’s not.

The second page is where the meat is. The important part is:

Thank you for submitting the R&D claim and amended returns for the above client. I would like to informally enquire into the above accounting periods. Please let me know if you wish form to do this on a formal basis.

Instead of asking for further written information, I would like to arrange a meeting at the company’s premises to discuss the R&D claim and the scientific advances made by the company in both years. The company’s competent professionals should be in attendance. I have read the report submitted by GrantTree Ltd and have some further questions.

The inquiry is clearly described as informal. This is a “friendly” data gathering meeting. There is no assumption that the company is *not* doing qualifying R&D. HMRC wants to meet some of the company’s “competent professionals” to form an opinion, based on the impression they get, that this is indeed the right kind of R&D.

Don’t be put off by the mention of “scientific advances” – the R&D scheme does not require groundbreaking scientific advances like inventing a new theory of gravity. The usual R&D criteria about overcoming technical uncertainty apply.

What to do before and during the meeting

Although the meeting is friendly, that doesn’t mean you shouldn’t be prepared. Re-read our articles about R&D Tax Credits, and in particular make sure you are clear on what qualifies and what doesn’t qualify, and that everyone in the meeting is clear about it to. Read our guidance about what HMRC audits are like.

During the meeting, stay calm and cooperative. This is a friendly meeting. Sometimes, the HMRC inspector may say things that seem outrageous to you (like comparing software development to bricklaying or knitting), but stay calm and realise that HMRC inspectors are not technical experts themselves, so your job is to calmly bring them around to your point of view.

So long as you filed your claim in good faith, and did not deliberately try to mislead HMRC with either your calculations or your description of the technology, the worst that can happen is that they might reject some or all of your costs.

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GrantTree  @GrantTree,Nov 28
Puzzled about the R&D Tax Credits and Grants relationship? Need insight about how to successfully access both? https://t.co/JVDoxT6zam 
GrantTree  @GrantTree,Nov 24
We unpick what yesterday's Autumn Statement means for the future of R&D in Britain and how it impacts your business. https://t.co/2XP90BmL4Q 
GrantTree  @GrantTree,Nov 23
RT @Payah:good news for @GrantTree friends and clients! https://t.co/8lAbYYUcaG 
GrantTree  @GrantTree,Nov 07
The age old question (well in R&D Tax Credits anyway!): should you file with your accountant or a specialist? https://t.co/HEChpmvvNM 
GrantTree  @GrantTree,Nov 03
RT @BizAdvice_UK:Find out which tax credits and reliefs you are eligible for as an #entrepreneur. https://t.co/Z141n2icPq https://t.co/zkO6TS2W5Q