Increased HMRC Enquiries on R&D Tax Claims: What You Need to Know

Overview of HMRC's Compliance Efforts

Reasons Behind the Rise in Enquiries

HMRC's escalated enforcement actions stem from an increase in non-compliant filings, particularly among SMEs. The agency's 2022 to 2023 annual report revealed that errors and fraud accounted for 16.7% of R&D Tax scheme payouts during the 2020/21 tax year, amounting to a £1.13 billion loss to taxpayers. According to HMRC, up to half of all R&D Tax claims could be partially or entirely ineligible for relief.

To address this, HMRC has initiated a series of stringent measures, including the expansion of their enquiry programme and immediate rejection of claims lacking mandatory additional information forms, as required from 8 August 2023. These actions, while intended to curb abuse, have been criticized by the Chartered Institute of Taxation (CIOT) as potentially overreaching.

Types of HMRC Enquiries

HMRC undertakes enquiries for several reasons:

• Eligibility Concerns: Where tax agents flag submissions that might contain ineligible costs.
• Volume Approach: Targeting companies fitting certain criteria.
• Random Checks: As part of a mandatory programme to gauge fraud and error levels.

Most enquiries are managed by either the Individual and Small Business Compliance (ISBC) Directorate or the Wealthy and Mid-sized Business Compliance (WMBC) Directorate, with differing outcomes. The CIOT reports that while WMBC often validates claims, ISBC predominantly rejects them, discouraging some legitimate claims and potentially undermining the scheme's objectives.

Strategies to Avoid HMRC Enquiries

To minimize the risk of an HMRC enquiry, ensure your R&D claim includes only compliant costs and projects, and aligns with the latest legislative requirements. The challenge has intensified with recent government changes to the scheme. It's crucial to accurately demonstrate that your projects meet the government’s definition of R&D in the technical section of the additional information form, requiring both technical knowledge and clear communication suited to HMRC's non-technical inspectors.

Expert Assistance from Accountancy Cloud

Navigating the complexities of R&D Tax claims amidst heightened scrutiny can be challenging. Accountancy Cloud’s team of R&D Tax specialists is equipped to help ensure your claims are compliant and robustly supported. For expert guidance or if you need assistance with your next claim, feel free to reach out to us. Our experienced team is committed to helping you with your submissions and successfully navigate HMRC’s rigorous compliance environment.