The Complete Guide to HMRC R&D Tax Disputes

Posted: 27th March 2024

The way HMRC handles R&D tax disputes has significantly changed over the last two years.

Focusing on a ‘compliance crackdown’, HMRC is attempting to reduce the number of fraudulent tax claims being made by SMEs – which means enquiries are on the rise and, unfortunately, genuine claims are subject to lengthy and intrusive enquiries that sometimes begin with allegations of fraud.

At NHD Tax Solutions, we’re currently dealing with record numbers of R&D tax disputes, and want to ensure you have a clear idea about the risks you need to mitigate.

Here’s what you need to know.

What is an HMRC compliance check?

A HMRC compliance check is an investigation into your R&D tax claim.

If a caseworker is struggling to work out if you’re entitled to R&D tax relief with the information you’ve provided, they will need to determine whether your claim is valid. This means you’ll need to answer some questions from HMRC and provide further information on the nature of your projects.

If HMRC decides to carry out a compliance check, you’ll need to be thorough and prompt with your responses. R&D tax disputes are a complicated process, and enquiries can run for months or even years. They may result in a reduction in the value of the claim, reputational damage or even penalties, so it’s important to minimise the likelihood of an enquiry and make sure your business is prepared for any potential investigation. It’s equally critical to know where to turn for specialist support.

Why are compliance checks launched?

Compliance checks are typically launched for reasons including:

Inconsistencies in your finances
Not enough evidence of eligible R&D
An increase or reduction in the size of your claim
Random spot checking

What happens during an HMRC R&D enquiry?

R&D tax disputes always begin with an initial contact letter. HMRC will outline why they’re investigating you and will request information from you in writing or via conference call. You’ll need to respond to HMRC by the stated deadline, usually within 30 days.

From this point, the structure of the enquiry can vary. While some R&D tax disputes can end here, it’s unlikely this will happen. Chances are, HMRC will continue to work back and forth with you to fill in the gaps in your claim.

You may receive a follow-up letter that contains more questions based on the new information you’ve provided, or HMRC will ask you for a physical or virtual interview. This may sound a little intimidating, but working alongside an R&D dispute tax specialist like ourselves can help you prepare for these sessions.

Once HMRC has enough information, they’ll decide on the validity of your claim. This can result in:

Your enquiry being closed and your R&D tax relief claim being approved
Your enquiry staying open as there are still discrepancies in your claim
Your enquiry will be closed, the quantum of the claim amended, and HMRC may consider actioning penalties

Bear in mind that you can appeal HMRC’s decision providing you do so within 30 days. You can also request an independent review, Alternative Dispute Resolution (ADR) or a tax tribunal. Contact us directly if this is something you need help with.

How can I avoid an enquiry?

One of the best ways your business can protect against R&D tax disputes is by partnering with a tax advisor who has reputable experience. They can make sure your numbers are correct, costs are justified, and technical information is clearly articulated.

That being said, we also understand that mistakes can happen, and ambiguities can still arise. And that’s where we come in.

At NHD Tax Solutions, we offer bespoke advice and support with R&D tax relief claims. With years of experience under our belts, our team can either work alongside you or manage your R&D tax dispute for you.

As we’re working on a lot of R&D tax disputes right now, we want to share a few common mistakes our team is encountering.

Recurring themes we’re seeing around R&D claims

Our specialists have picked up on four recurring themes:

Reports – R&D reports are too long and lack relevant information on timelines and technical uncertainties
Financial schedules – very few contain detailed sheets on the breakdowns of costs, staff roles and R&D activity
Responses to HMRC – we encounter responses that haven’t been sent before HMRC deadlines, as well as responses that lack adequate evidence or information
Penalties – more businesses are requiring our support as they face action from HMRC

These are areas you should definitely bear in mind when submitting your R&D tax claim.

Moving forwards

As frustrating as R&D tax disputes are, they can sometimes be unavoidable. So it’s important to familiarise yourself with the process.

If you do run into issues claiming R&D tax relief, we’d recommend focusing on your figures and expanding on the technical aspects of your projects. And this becomes a whole lot easier when you partner with an expert.

If you need an R&D tax dispute specialist to help you navigate the ins and outs of compliance checks, we’re on hand with the skills and know-how to guide you through.

Reach out to our team for a confidential chat.