HMRC R&D Enquiry Defence Support Service

Our specialists will provide a robust defence against any HMRC R&D enquires.

What is an HMRC R&D enquiry?

As the number of businesses benefiting from the R&D Tax Credit scheme has increased, there has been a comparable increase in HMRC measures to reduce falsified claims. Tighter restrictions on claim reviews have been introduced and in certain instances, HMRC will ask for more information to substantiate an R&D claim. This is known as an ‘enquiry’ and can sometimes involve an onerous and drawn-out process.

How can Leyton support your HMRC R&D enquiry defence?

Our teams will review your HMRC R&D enquiry details using our financial and technical/scientific expertise. We assess the likelihood of a successful defence and implement a tactful response based on our extensive knowledge of HMRC activities and our close working relationship with this authority.

Guidance on appealing a claim decision after the closure of an HMRC R&D enquiry

Our team will begin by assessing the probability of success in a Tribunal appeal hearing. We will then manage administrative tasks, stakeholder coordination and pre & post tribunal actions to successfully prepare your business for the tribunal hearing. Where possible, we will take actions to implement dispute resolution prior to the tribunal hearing and use our expertise to enhance the probability of resolving dispute at the earliest possible stage.

Our Process

  • Pre-contract assessment and due diligence on likelihood of success
  • Review and audit of historic records of R&D claim(s)
  • Interview key personnel to gather more evidence in defence of the claim
  • Request and collate any additional details to aid the HMRC enquiry responses preparation
  • Prepare written responses to HMRC enquiry questions
  • Directly communicate with HMRC on R&D claim related enquiry responses when asked
  • Prepare and support client for any conference call/face to face meetings with HMRC
  • Manage administrative aspect of closing of HMRC enquiry

Find out more about
HMRC R&D Enquiry Defence Support Service

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What does an HMRC R&D enquiry involve? keyboard_arrow_down keyboard_arrow_up

An enquiry means that HMRC thinks an R&D Tax Relief claim is incorrect, and they will therefore seek to review the accuracy of the claim. It can be a drawn-out process, taking months (and sometimes years) to resolve.
When HMRC queries R&D claims, an officer from a specialist R&D Unit will discuss the claim with the business’s technical and scientific experts as well as management. HMRC will request the information required to confirm that the business is undertaking eligible research and development projects and claiming for the right costs.
Enquiries typically delay payment of R&D Tax Credits but HMRC keep this under review and may make interim payments as the enquiry progresses.

For further reading, HMRC has published the full conduct of enquires.

Can an HMRC R&D enquiry happen after an R&D Tax Claim has been processed? keyboard_arrow_down keyboard_arrow_up

Yes, HMRC R&D enquiries can take place after claims have been processed. HMRC states that they may still enquire into R&D claims within the statutory time limit.
Enquiries will check that the companies are in receipt of the correct amount of R&D Tax Relief and that they have paid the right amount of tax.

Has anyone ever been prosecuted for fraudulent R&D Tax Credits claims? keyboard_arrow_down keyboard_arrow_up

In November 2020, three men were jailed for a bogus £29.5m R&D Tax Relief claim. The perpetrators used a registered company, Clinical Information Systems Ltd, to claim the relief on a fake IT healthcare system on which they attempted to claim £137m worth of R&D expenditure on. After submitting the claim, the men were asked for supporting evidence that the claim was in fact legitimate, and having failed to provide this, they were subsequently jailed.
At the time, HMRC published the following statement: “This wasn’t research and development, it was out and out fraud. HMRC will continue to create a level playing field for law abiding businesses by rooting out the minority who seek to abuse these schemes, as this result clearly shows.”
More recently, in October 2022, eight people were arrested on suspicion of conspiring to submit more than 100 fraudulent R&D Tax Relief claims. HMRC released a statement that said: “The arrests include a tax agent suspected of criminally facilitating the fraudulent attack. More arrests are expected in the coming days. By acting quickly to pause payments and implement additional checks on claims, we’ve protected £46m of public money.”

What are the most common mistakes made during R&D Tax Credit claims? keyboard_arrow_down keyboard_arrow_up

Making errors on the claim form
Not including enough information in the claim
Claiming for work that does not qualify for relief
Claiming for costs that have not been incurred on qualifying activities
Claiming for staff time that is not spent on qualifying activities
Not accurately calculating the amount of R&D expenditure
Companies not recognising that they aren’t SMEs (and should therefore be claiming under the RDEC scheme)
HMRC have published a list of common errors made during R&D Tax Relief claims.

What are the penalties for mistakes arising from an HMRC R&D enquiry? keyboard_arrow_down keyboard_arrow_up

Penalties can be extremely harsh, however they are relative to the level of negligence or fraud which is identified. The penalties tend to average around the 15-30% mark in terms of lost tax relief if there has been a ‘careless’ mistake. If a “deliberate” mistake has been made, a business will be looking at a 30-70% in lost tax and this could rise to 70-100% if the HMRC identifies a “deliberate” mistake with concealment – essentially a fraudulent claim.
Let’s say your claim value is £50,000 and you receive a penalty based on a ‘careless’ mistake, you will receive a penalty of £7,500 to £15,000. Furthermore, the interest on the penalty is 3% per annum if not paid. If the mistake were ‘deliberate’, up to the full £50,000 can be fined. It is therefore crucial that a business receives the best advice around their R&D claim, in order to both avoid hefty penalties and the time investment required to challenge an HMRC enquiry.

Other Leyton services which may interest you

Our highly qualified in-house teams constantly monitor market develop­ment and government funding opportunities to provide the most up-to date cost saving solutions. We offer support around a number of other government schemes including:

Speak to one of our innovation funding specialists

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