How to stay on the good side of HMRC when claiming R&D tax relief and avoid penalties

If you work in the science or technology sector, you’re likely aware of R&D (research and development) tax relief, also known as tax credits. But you may not be aware of an unprecedented surge in fraudulent claims.

This has prompted HMRC to come down pretty hard on fraudulent or exaggerated claims, and they’re taking no prisoners, with some companies paying fines as much as the claim itself. Of course, that’s on top of paying back any credit received.

It’s estimated that during 2020/21, over £400m was wrongly claimed by UK companies. As a result, HMRC has hired 100 additional staff to focus on R&D tax relief claims to try and reduce the scale of error and fraud in claims.

This has led to a substantial increase in the number of enquiries being opened into R&D claims, the issuing of ‘nudge’ letters, and HMRC taking a tough stance. Scary stuff, but once you’ve read this article, you’ll see how this kind of situation can easily be avoided and what to do if you receive an enquiry notice.

You may have heard that last year there was a short period of time in which HMRC had no choice but to halt all repayments until additional checks could be put in place for cash repayments. One year on, large-scale fraud is becoming less prevalent, but these checks remain in place to ensure greater security and as noted above we are still seeing increased levels of compliance activity from HMRC to crackdown on fraudulent and inaccurate R&D claims.

Where does the buck stop?

Sadly, it’s with you. If HMRC were to launch an investigation into your R&D claim, and was to find an issue, they’ll write to you and could ultimately fine you, not the company or individual who processed the claim on your behalf.

It’s for this reason that you should be careful about who you choose to handle your claim. If HMRC does come knocking, it might not even be that your claim is intentionally fraudulent, but perhaps flagged due to inconsistencies in data or errors in calculations.

You should be particularly careful when:

• Using an online third-party who use an online platform or template to simplify and speed up the process to make the claim on your behalf, particularly if you’ve never used them before
• Using a company that is unregulated
• You have not seen any part of the R&D claim (ie: it was entirely outsourced) and you were not asked to input into or review the claim before submission
• Preparing the claim yourself. We’re sure you have good intentions, but with so many recent changes to the rules are you an R&D tax expert or a competent professional able to make appropriate judgements about eligibility?

How to stay above board

You know where this is going. We recommend using a regulated advisor who can demonstrate strong and repeated experience with R&D claims, and if you’re worried about previous claims, don’t bury your head in the sand, ask for help!   We recommend that you use your trusted advisor to look over these claims. We can’t promise anything, but typically, if you disclose any errors to HMRC, the lower any penalties should be (for making an unprompted disclosure compared to HMRC identifying an error itself).

It goes without saying that if you do receive a letter from HMRC saying that you’re already being investigated, then get in touch with a regulated advisor immediately and try to stay calm. Specialist advice will help, panicking and ignoring it will not. 

Who you gonna call?

Wilson Partners, ideally. Wherever you are on your R&D journey – perhaps it’s your first time and you could do with some guidance, or maybe you’re not happy with your current claim handler – then drop us a message. We help businesses of all shapes and sizes to understand R&D tax credits, and we handle all the heavy lifting so you don’t have to. AND, with a specialist tax team and Top 4 expertise, without the Top 4 price tag, we’re also great at what we do!

As the government and HMRC tighten their purse strings to recover from the financial shock of the pandemic and other world events, they’ll be scrutinising just about every type of tax relief that passes across their desks, so let’s get it right first time and every time and unlock the great potential of R&D tax credits.

If you want to learn more about how you can stay on the right side of HMRC for your R&D, Innovations tax and Patent box claims, why not drop a line to our Innovations Director, Emma Richards.