For a proportion of research and development (R&D) tax credit claims, HMRC ask for more information. This process is known as an enquiry, and there are several possible outcomes. A well-prepared and robust claim should withstand scrutiny and be paid to you once you have answered HMRC’s questions. If discrepancies are found, your claim could be reduced and even have penalties imposed. Enquiries may highlight better record-keeping requirements for future claims.
Any R&D tax credit claim submitted to HMRC will be reviewed. This is why, at ForrestBrown, we put so much time and effort into ensuring that the claims we submit are as thorough and well-presented for HMRC as they reasonably can be.
An R&D tax credit claim will usually be processed by HMRC without the need for an enquiry. In most cases, a desktop review of the claim documents will be sufficient for HMRC to be satisfied and to process the claim.
However, in a minority of cases, the inspector will ask for further information before reaching a conclusion – this is where the enquiry process begins.
What are the short-term implications of an enquiry?
In the short-term, an enquiry means that payment of the R&D tax credit and/or tax repayment is likely to be delayed – although enquiries can sometimes happen after a claim has been processed. This will give the inspector time to ask questions to better understand the R&D and how the costs claimed have been arrived at. These questions will initially be asked by letter or email. But the inspector may want to meet the competent professionals who have assisted in the claim’s preparation.
This may sound daunting, but if you have worked with ForrestBrown to prepare your claim then we will manage the enquiry on your behalf. It is likely that we’ll need to work with you to gather some additional information, and the inspector may want to meet you since you are best placed to describe your R&D projects to them. But we will be on hand to guide you through the whole process. What’s more: our time and expertise in handling the enquiry is included in our claim fee.
If your claim has been prepared elsewhere, our expert team can help you through the process via our enquiry support process.
Enquiry outcomes of a well-prepared R&D tax credit claim
Each of our claims is subject to a detailed quality assurance (QA) process, which includes review by our in-house ex-HMRC inspector before it is submitted. The purpose of our QA process is to ensure that all of our claims withstand HMRC enquiries. Therefore, in most enquiry cases, once further information and explanations are provided, the inspector is satisfied that the claim originally submitted was accurate and robust.
In these cases, the inspector will simply close the enquiry and arrange for the R&D tax credit and/or repayment to be paid. In other cases, where it is not possible to reach agreement on every enquiry point, the enquiry may be settled by negotiation.
It goes without saying that in this scenario it is essential to have an adviser who is experienced at negotiating enquiry settlements. This will ensure a mutually acceptable outcome is reached.
ForrestBrown were really useful to have on our side and were a pleasure to work with. For any company facing a similar situation my advice is, be clear that the original claim that you have put together is right – like ours was.Guy Hatton, Digital Director at Clinic
Enquiry outcomes of weak R&D tax credit claims
If your claim has not been robustly prepared, errors may be identified during the enquiry process. As well as leading to reductions in the claim value, HMRC may also consider whether penalties are due for carelessness or negligence.
How long does an enquiry last and what else might happen?
Depending on the complexity of the claim, an enquiry will typically take between several weeks and several months to reach closure. During the enquiry, changes to the claim methodology and/or record-keeping processes can be agreed to support future claims. Companies that have experienced an enquiry often choose to reflect HMRC’s feedback into their R&D record-keeping to support future claims.
At ForrestBrown our team includes not just chartered tax advisers, sector specialists, chartered accountants and lawyers, but also former HMRC inspectors. We will work with you to ensure the right information is included in your claim and that it properly describes your R&D.
With an active seat on HMRC’s R&D consultative committee, we benefit from policy level insight into what HMRC expects in support of R&D tax credit claims. In 2018, our enquiry rate was just 0.8%.