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Does HMRC have the power to withhold repayment of tax credits for R&D?

Understanding HMRC policies regarding tax repayment is important, regardless of whether you are a small, medium-sized or large R&D business. In addition, certain adjustments have been made to HMRC’s policies for the duration of the coronavirus crisis. Read on to find out more.

HMRC does have the power to withhold tax credit repayment for R&D entities. If they have questions regarding your tax claim, they will conduct an inquiry to verify all the details of your claim. Once HMRC are satisfied with the information you have provided, your tax credits will be repaid.

HMRC Enquiries

If HMRC believe that your repayment claim requires additional information or preparation, they may initiate an enquiry to ask you relevant questions.

HMRC require the following details to repay R&D tax credits:

  • Your numbers
  • R&D projects (or technical narrative)
  • Supporting methodology

During this period, the standard 28-day payment-processing procedure will not apply. Instead, HMRC will withhold the repayment until they have reviewed any additional information they require and are satisfied that your claim meets their criteria.

Furthermore, aspects of the claim will be discussed and agreed upon during the enquiry, and you will be allowed to request partial payment to reflect the amounts that have been agreed upon within your claim. Once the enquiry has been completed and HMRC are satisfied with the claim, all outstanding amounts, including relevant interest, will be paid to you.

The enquiry may also lead to HMRC launching an enquiry into your R&D tax credit claim after it has been processed and paid. In such cases, if any aspect of your claim is considered to be unsatisfactory by HMRC, it may be necessary for you to pay some of the money back once the inquiry has been concluded. HMRC are also entitled to utilise the money to cover outstanding tax liabilities.

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HMRC policy adjustments during Covid

HMRC have confirmed that R&D tax credits will notbe used to offset deferred VAT liabilities during the coronavirus crisis.

The HMRC website also states that businesses as well as self-employed entities that are in financial distress and have outstanding tax liabilities may also be eligible to receive assistance, via the HMRC “Time To Pay” service. The initiative is aimed at allowing businesses and individuals to pay off their debt in instalments over a period of time. Arrangements are made on a case-by-case basis.


Criteria for eligibility

The criteria for eligibility are that businesses or individuals must be UK tax payers and must furthermore have outstanding tax liabilities. Problems regarding tax payment due to the coronavirus are restricted to:

  • Self assessment
  • VAT
  • Employer’s PAYE
  • Corporation tax

If you wish to speak to an expert for a free consultation do get in touch.

Join us on LinkedIn Live!

If you liked this, then you’ll love our upcoming LinkedIn Live event!

On the 23rd of April, 2021 at 11 am, our very own CEO Wesley Rashid and R&D Manager Anh Vu will be joined by Edo Salvesen, CFA and Director of Finstock Capital, to discuss everything you need to know about claiming R&D Tax Credits in - “Unlocking your R&D Potential”.

Attendees will be invited to join Anh for a complimentary 1-on-1 R&D clinic, don't miss it!