If you are facing an HMRC claim or investigation into R&D tax credit claims – we can help. Andy Lynch previously spent 18 years working in HMRC investigations before joining FWJ. Speak to a real expert.
What is an R&D claim?
A genuine R&D tax credit claim provides support to businesses that invest in innovation in the field of science and technology.
- The relevant legislation is contained in various amendments of the Finance Act, and the further government guidance on how to make a valid R&D claims is available.
- However, the rules and regulations surrounding R&D claims are lengthy and complex, and the bar is set high for qualifying R&D claims.
What companies should have been doing is making sure that the credentials of any specialist advice brought in to assist with applications has been properly scrutinised. Whilst these reports might have been prepared by third parties, it is the company itself and its directors who remain liable should the information in the report or the claim made prove to be inaccurate.
The integrity of the qualifying claim is crucial when it comes to the HMRC reviewing the individual R&D claims made by companies. It is the company who is responsible for ensuring the veracity of the submissions to HMRC.
Taxpayers who have recently submitted claims can expect a delay in payment.
The reasons for the surge in HMRC current investigations
HMRC are stepping up investigations in to erroneous and overstated R&D tax credit claims. The latest HMRC Corporate Report on its approach to Research and Development tax reliefs was published in July 2023.
- it is estimated that over £400m has been wrongly claimed by companies in the 2020/21 tax year, rising to £1.05bn in 22/23.
- HMRC is now making serious efforts to recover that money. HMRC has recruited over 300 people to boost its team and carry out reviews of R&D tax credit claims by companies and investigations in to any wrongdoing.
- HMRC are sending out increasing amounts of compliance, “nudge” and demand letters.
The reasons for the increase in investigations is down to the recent surge in R&D claims driven by the emergence of ‘Claims Company’s’ who profess to be R& D tax experts. These companies often trade on a “no win no fee basis” – and it is in their interest to maximise the R&D claim as they can receive a commission on the total amount claimed.
What has become increasingly clear is that not all of these Claims Companies have been submitting genuine R&D claims on behalf of their clients. They have been submitting erroneous claims, often for greatly inflated amounts, either because
- they do not have the right skills to deal with claims; or
- because they have deliberately submitted completely fraudulent or false claims so that they can earn commission.
Whatever the reason for the wrong claims – it is the taxpayer (the company) which remains liable for the consequences – and HMRC is now cracking down on this
A recent article by the ICEAW has highlighted the increase in compliance and investigation activity by HMRC in relation to R&D tax credit claims. This is only likely to increase.
Are you at risk?
You will be at enhanced risk of an HMRC investigation or HMRC Letter if you took your advice from one of the following
- You made the claim online – using a company or platform you have had no previous experience of using. Often these platforms are quick, using a simple pro forma / template document for you to fill in.
- You prepared the claim yourself – and didn’t take any advice at all from an accountant or other tax expert
- The company you used looked official and legitimate – but is in fact unregulated by an of the usual regulatory bodies.
- You / your fellow directors simply outsourced the whole exercise and if questioned by HMRC, would have little if any understanding of how the R&D claim was put together or the amount of tax credits claimed
If you fall into any of the categories above (or have any concerns at all), we recommend that you review your previous claim and make sure that it was legitimately made. This is true even if you have received a tax credit previously or received a cash payment from HMRC.
If you would like us to help in this respect do get in touch today. Even if it hasn’t got to the formal investigation stage, we can put you in touch with a range of reputable tax specialists and avoid you making further mistakes by choosing the wrong firm to do a review.
Very happy with the support and advice Andy provided with an R&D investigation.A company director
What are the penalties if I have made an incorrect claim?
The penalties for incorrect R&D claims are serious. They can be as high as 100% of the cash payment you have received.
What do I do if I discover a previous claim was wrongly made?
If you discover a previous claim was wrongly submitted – you should make a disclosure to HRMC without delay. Failure to do so will only make matters worse. We can help you make a tax disclosure in the proper way
Indeed, an early disclosure can dramatically reduce the overall fine or penalty HMRC would otherwise impose on your company.
What should I do if I receive an HMRC Letter?
If you do receive a letter from HMRC – the key is not to panic. Indeed, you might have thought that nothing was wrong, especially if the company you used to make the claim appeared legitimate.
Our advice is as follows
- Do not ignore a letter from HMRC. It will only make matters worse
- Take specialist advice quickly. Even if you think you have done nothing wrong, the reality is that R&D tax credits are a complicated area – so having an expert review the situation is vital.
- Check any previous R&D claims. Again, we would recommend you do this with the help of an expert. If HMRC suspect one claim is wrong, they are likely to go back further and look at previous claims. It is better to get ahead of the curve, and if you discover other errors, make an early disclosure to lessen the likely penalties.
- Once these internal investigations have been completed, it is important to respond to HMRC. Again, to avoid any unintentional mistakes – we would strongly recommend that our experts help draft that HMRC letter.
Other ways we can help
Our Tax Disputes team can help with the following types of issues with HMRC
- HMRC investigations – including HMRC Code 8 and HMRC Code 9
- Disclosure to HMRC
- Appeals and Tribunal Work
- Disguised Remuneration and APN’s
- PAYE or VAT Security Notices
- Personal Liability Notices
- Loan Charges
- Time To Pay Agreements
Our Director Defence team can help with the following
- Defending claims by HMRC
- Defending Claims by Liquidators & Administrators
- Defending Company House claims
- Director Disqualification Defence
- Compensation Order claims
Our Company Rescue team can help you with the following
Recent Tax Defence case study.
Our team recently dealt with a COP8 enquiry where a food services provider was persuaded by a ‘claims’ company that they a had a valid claim.
This clearly wasn’t the case and following negotiations a settlement with HMRC mitigating the penalty down to 35%. This is the maximum discount for deliberate behaviour.
FWJ did precisely what it set out to do. I am extremely grateful for its assistance.
A client who had received a Request for Security from HMRC for a sum that would have caused their company severe financial difficulties. We helped them to have the entire bill withdrawn
FWJ were very hands-on, getting involved from an early stage in seeking to avert an expensive set of litigation proceedings. I am more than happy to recommend their services, particularly when it comes to considering complicated issues or complex proceedings.
A client who was facing a liquidator claim for the improper withdrawal of sums from a company. We had the claim dismissed