HMRC puts R&D tax relief claims under the microscope


HMRC has announced that it is tightening up the R&D tax relief claim process. Reasons for the change include lack of knowledge on the part of claimants, R&D tourism, and more. So, if you receive notification of an enquiry after a recent R&D claim of your own, don’t be surprised. Here are the relevant details for business owners:

What’s changing?

HMRC is beginning to crack down on R&D tax relief abuses. The claiming process will be longer (28 to 40 days) and more complicated for subcontractors and those claiming subsidies. As a result, your chances of being contacted by HMRC have increased significantly.

Some experts call it the end of the honeymoon period for R&D tax credits. The generous claim, which offers up to 33 pence for every £1 of eligible expenditure, has been susceptible to R&D claim tourism and other abuses by SMEs over the years.

Why are HMRC enquiries likely to become more common now?

According to the BERD poll, HMRC is missing out on £20 billion in R&D spending. HMRC has previously taken efforts to avoid foreign corporations’ R&D claims, such as introducing new PAYE & NIC Caps or imposing new requirements requiring claimants to mention their R&D claims on their annual CT600. Now, they are going a step further in an effort to recoup some of the missing funds.

R&D tax credits are a key tool for companies pursuing new ventures. HMRC’s crackdown is not aimed at stifling these ventures—rather, it is aimed at preventing systemic abuse of R&D tax relief.

As a result of these changes, firms may expect an HMRC enquiry if they seek R&D tax relief. HMRC will most likely focus on whether the work done qualifies as R&D and whether the costs incurred are deductible.

How can my business avoid an enquiry?

If you intend to claim R&D tax relief, you should get professional guidance to ensure that your claim is genuine and that you have the appropriate evidence to back it up. Failure to do so may result in a very expensive HMRC enquiry.

The steps you should take in order to avoid an enquiry are as follows:

  • Only claim R&D tax credits for qualifying expenses.
  • Maintain meticulous records of your R&D operations.
  • Get assistance with your R&D tax claim from experienced tax specialists.
  • Keep your R&D tax claim activity description as specific as possible, because, the previous ambiguous criteria have been reversed.

If you are planning to make an R&D tax relief claim, then it makes sense to talk to an expert. At JW Hinks, our experienced tax team understands all the ins and outs of the UK tax regime. Contact us on 0121 456 0190 to find out how we can help you stay on HMRC’s good side.

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JW Hinks LLP
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Birmingham B15 3BH

Phone: +44 (0) 121 456 0190
Fax: +44 (0) 121 456 0191