Understanding R&D Eligibility and Compliance Check Letters

Stay Informed

Here are some useful observations:

• Consider any HMRC correspondence related to your R&D claim seriously
• If you’ve received an R&D payment it doesn’t follow HMRC’s given it approval
• HMRC may come back to you later to ensure your claim is correct
• You are ultimately responsible for the validity of your R&D claim

R&D Eligibility or ‘Nudge’ Letters

HMRC sends these out as a way of encouraging companies to focus on possible mistakes in their R&D claims. If you get one, it doesn’t necessarily follow that you’ve made a mistake.

How to Identify a ‘Nudge’ Letter

These tend to follow a set format. A key heading would be:

“Research and Development (R&D) tax relief – help confirming you are eligible.”

You might also see this sentence:

“If you think the R&D carried out by the company does not meet the conditions, you should also make sure you report this accurately when filing your next Company Tax return.”

‘Nudge’ letters flag up the BEIS guidelines and contain links to appropriate gov.uk pages.

Why HMRC Sends Out ‘Nudge’ Letters

HMRC is under pressure to cut down on the amount of mistakes in R&D claims that have cropped up after compliance checks.

Despite staff increases, HMRC has limited resources. It hopes companies will reexamine their claims with no need for any further enquiry.

What You Should Do Next

In correspondence from HMRC you’ll find links to HMRC’s guidance on R&D claims. The information found there is useful and it’s wise to ensure you read and understand it all.

You should promptly get in touch with your specialist adviser and/or your accountant. They’ll be able to explain potential risks and recommend any further steps you need to take.

How to Identify a Compliance Check Letter

If you receive a letter from HMRC stating that they’re carrying out a compliance check into your R&D claim, it’s the start of what’s known as an ‘enquiry.’

The heading of the correspondence will be:

“Check of the Company tax return for the period ended…”

The letter may include factsheets such as the CC/FS1a ‘About compliance’ checks. Although these factsheets can run to many pages, usually only one will contain questions you need to answer.

Why HMRC Sends Out Compliance Check Letters

Here are common reasons:

• HMRC believes it’s found an inconsistency in your claim
• HMRC is checking a change in circumstances like an increased claim value
• An R&D claim check completes the picture in an unrelated tax return query
• HMRC is targeting a particular sector or type of technology to ensure consistency

What You Should Do Next

Treat the receipt of these letters with urgency. Make sure you understand the actions you need to take and any given deadlines. You’ll often have 30 days to answer requests so always double check the date written at the top of the letter.

If you used an R&D tax adviser to prepare your claim, share the letter with them immediately. They will come up with a plan about how to respond. Get a second opinion if you’re at all worried.

Always Take Action

Never ignore eligibility or compliance check letters from HMRC. You may need to take direct action as a result. If in doubt, contact your R&D claim specialist or accountant straight away.

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!