HMRC Fraud Investigation Service (FIS) checks are on the rise again, and while numbers are nowhere near the mid-2022 tsunami, more and more companies are finding the dreaded brown envelope dropped through their letterboxes.
Despite the ominous name of the department, for companies that have prepared their claims properly and used a well-regarded adviser, there is often no tangible reason for the involvement of the fraud team and they are simply victims of HMRC’s broad approach to improving compliance in R&D Tax Credits claims.
It is important to point out that FIS involvement does not immediately mean there is evidence of wrongdoing. The wording often feels as if HMRC have already decided something is wrong or worse, insinuate that fraud has taken place. In reality, their involvement often means they’ve identified one or more pre-categorised risk factors and want further information to get comfort that a valid claim has been made.
Key differences between an HMRC FIS check and an R&D tax enquiry
With the scaling down of the Individuals and Small Business Compliance (ISBC) team’s R&D impact, most routine R&D tax enquiries will be run through a named HMRC caseworker in Wealthy and Mid-sized Business Compliance (WMBC) or the Large Business divisions. FIS checks however, do not have a named caseworker and cannot be contacted by telephone. This can be both intimidating and frustrating, especially if there are only small details to iron out, and often the approach of the anonymous caseworkers can be quite inflexible.
Where the caseworkers in WMBC are normally agreeable to suggested timeline extensions to accommodate workload, annual leave etc, FIS often adopt a “computer says no” approach and are more rigid in timeline expectations for responses.
What is involved in an HMRC FIS check?
The types of questions that HMRC ask in a routine enquiry will cover any and all of the R&D work undertaken (baseline, advance, uncertainty) and the costs claimed (staff, consumables, software, etc.) along with the rationale for including them and supporting evidence.
In contrast, FIS checks tend to only ask three to five questions, with the majority focussing on the costs that have been claimed and for the company to provide evidence of payment (through bank statements), and details of the staff included (i.e. P60s).
Most FIS letters include a single question in relation to the scientific or technological advance that was sought, which can often seem like an afterthought in comparison to the level of detail needed for the other questions.
How long does an HMRC FIS check take?
Routine enquiries tend to be protracted matters, taking 12 months on average to resolve. FIS checks are often one round of correspondence, followed either by acceptance of the claim or full rejection with no right of appeal (though, this isn’t the end of the road, more on that below). Companies often know the outcome of the FIS check within six to eight weeks from the start of the process.
The nuance in outcomes includes claims that are then referred ‘sideways’ to WMBC for a full enquiry. Alternatively, for claims that are outright rejected by FIS and removed from the company’s tax return(s), it is possible to “reject the rejection” and resubmit the return(s) with the R&D reinstated within 3 months of the notice or later if still within the amendment window. However, this restarts the clock for HMRC to open a routine enquiry. It also requires the company and their adviser to be completely sure as to the qualifying nature of the technical work and the legitimacy of the costs that have been claimed, as any errors identified in a subsequent enquiry could be subject to tougher penalties.
Tips for successfully dealing with an HMRC FIS check
While there is no silver bullet for closing out a check, there are actions that companies can take to maximise their chances of a quick and successful outcome:
- Deal with it! Don’t sit on a letter from FIS. If you ignore it, it doesn’t go away – instead, you could be risking your R&D claim.
- Alert your advisor early: as mentioned previously, timeline extensions are not something FIS are partial to do, so the clock is ticking. By starting work on your response with your advisor as soon as possible, you maximise your chances of the response being in the best shape possible.
- Answer all the questions. Yes, some of the questions ask for a laborious amount of digging through bank statements and other records, which no one would volunteer to do. FIS won’t just let it go or accept a Xero export. Future you will thank you for putting the time in now.
- Don’t volunteer more than they’ve asked for. While it can be tempting to provide the detailed rationale for how costs were calculated or development reports etc, FIS are unlikely to care, and it can give them additional “threads” to pull at. The goal should be to clearly and concisely answer exactly what has been asked.
How Leyton can help
If you are facing a FIS check or any other HMRC enquiry into your R&D Tax Credits claim, our consultants at Leyton are able to review and advise on your prospect of success and strategy for moving forward. Get in touch to find out more.
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