Do HMRC have powers to withhold R&D repayment of tax?

HMRC has the power to withhold repayment of R&D tax-credits until satisfied with all the details of your claim: the numbers, R&D projects (or technical narrative) and the supporting methodology.

If HMRC has any questions about your claim and its preparation they may open an enquiry. An enquiry can be opened prior to the claim being processed or after, up to the enquiry window closing. As a reminder, HMRC’s processing and payment of R&D claims is separate to its compliance process. A claim being processed and money received does not mean that the claim has been checked or ‘approved’ by HMRC. We’ve seen a general trend whereby taxpayers have their claim processed and subsequently HMRC opens an enquiry.

If an enquiry is opened prior to the claim being processed, the usual 40-day payment-processing target will not apply. HMRC will instead withhold the repayment until it is satisfied with the claim and has reviewed any additional information required.

During the course of the enquiry, as aspects of the claim are discussed and agreed, you can request part-payment to reflect the amounts within your claim that have been agreed upon. When the enquiry is concluded and HMRC is satisfied with the claim, any further amounts will be paid – including any interest accrued.

As noted, HMRC may also open an enquiry into your R&D tax credit claim after the claim has been processed and paid. In this case, if it is unsatisfied with any aspect of your claim, you may have to pay some money back at the end of the enquiry. The repayment will include interest which runs at base rate plus 2.5%. If a company knows that an element is being removed they may seek to repay this element during the enquiry to reduce the interest cost.

HMRC also has the power to utilise the money to settle outstanding tax liabilities, such as PAYE and VAT payments. This will be done automatically by HMRC in the payment phase, with the net funds being paid to the company if any remain.