HMRC R&D tax compliance enquiries

Should HMRC opt to open an enquiry, they’ll write to you with an opening list of queries and requested documentation. HMRC will likely begin by seeking additional information about why the claimant believes that qualifying R&D activity was undertaken. It’s generally the case that the claimant’s response will be met by further questions and the enquiry may evolve to cover the cost categories concerned and scheme selection. There may be several rounds of correspondence before HMRC issue a closure notice, which may be appealed.

HMRC may use their powers to remove a claim from the tax return without going through an enquiry process. If they do this, you'll receive written notification and can appeal.

HMRC often use ‘one to many’ letter campaigns for ‘educational’ purposes and to prompt taxpayers to review their affairs and contact them regarding required amendments, or to confirm that they have reviewed the position and concluded no amendments are necessary. It’s possible that we could again see HMRC use this approach in the R&D tax space. If so, the letters may be aimed at particular types of projects or business sectors.

Whatever type of communication you receive from HMRC, it’s important to give it due and prompt consideration. Your response will be crucial to how the HMRC interaction plays out.

HMRC generally have a year from the filing date to open an enquiry into a claim. However, they may be able to rely on their discovery powers to revisit claims going back up to 20 years. In addition, if an enquiry has been closed and a claim has been amended or withdrawn, HMRC will expect the claimant to reconsider previous claims and to come forward with any necessary adjustments. It’s likely that HMRC will increase the scrutiny of claims that are now out of the standard enquiry window. 

If a claim is credible and has been properly prepared, then there’s no need to be unduly concerned. However, HMRC may still choose to test the integrity of the claim. This can be challenging, particularly where the R&D activities took place some time ago; records may not be easily obtained and key technical personnel may have left the business.

If you feel that you may have had poor quality advice or that a claim may otherwise be vulnerable to scrutiny then the correct course of action would be to check the claim and come forward to HMRC to disclose any irregularities. This will mitigate the penalties and interest that may be due in addition to reimbursing HMRC for the value of the claim.

HMRC are being expected to tackle error and fraud in the R&D tax regimes and have significantly increased resources directed at R&D tax compliance. These are two key factors behind the much increased likelihood of claimants receiving contact from HMRC.

While a claim may be randomly selected for enquiry, HMRC also apply risk assessment procedures to identify claims which ought to be checked. The use of more targeted measures by HMRC is now likely following the introduction of the additional information form and claim notification requirements.

The appropriate contact will depend on the circumstances but, in all cases, it’s important to get it right by developing a strategy upfront.

Where HMRC has initiated contact or interaction with them is already in progress then they'll provide contact details and procedures.

If you’re considering proactively contacting HMRC then this may be done through general HMRC channels. If you have a dedicated Customer Compliance Manager (CCM) then you can make contact through them. Some claimants may be able to request a CCM who can help secure the standard of HMRC attention needed.