What is an enquiry?

We’ve mentioned before that HMRC does not check all R&D claims.  However, it will investigate some to ensure that the claim and corresponding costs are valid and this process is called an enquiry (aka a compliance check).

The process will begin with a notification letter sent to either the claiming company or their agent.  This letter will contain a request for additional information with regards to the claim and a deadline for providing this information.

Once the additional information has been supplied, HMRC may also request a meeting or call with the relevant staff within the claiming company.  Further information, documents and communication may be required until the HMRC inspector is satisfied they have all the relevant information.

At the end of the enquiry process, HMRC will either:

• approve the claim in full
• part approve the claim but require some costs to be reduced or removed
• disallow the claim completely

In the last two cases, HMRC may decide to issue a fine of up to 100% of the value of the claim.

Can an enquiry be avoided?

An enquiry into an R&D claim can take many months, significantly delaying any payments to which a company is entitled.  There is no guaranteed way to avoid an enquiry but to reduce the risk of one it is very important to:

Prepare a technical report which illustrates how the company’s projects meet the criteria for qualifying R&D activity and includes the scientific/technological uncertainties which need to be overcome in order to achieve the desired scientific/technological advancements.

Include a breakdown of all the costs being claimed and ensure they fit into one of the allowable categories of R&D expenditure (staff, subcontracted activities, externally provided workers, transformable and consumable items) and that they match with the company’s accounts.

Can anybody help with this?

A reputable R&D consultant should be able to prepare supporting claim documentation which reduces the risk of an enquiry.  Their fee should also include support in defending an HMRC enquiry should that be necessary.  When deciding on an R&D consultant to partner with, it is worth asking what percentage of claims they submit get an enquiry – our rate for the purpose of comparison is less than 0.5%.

You can find further advice on choosing an R&D consultant in our blog here.

If you have had an enquiry opened into an R&D claim you have submitted and aren’t sure what to do, get in touch via [email protected] and we will be happy to discuss your options.

Posted: 22 Feb 2022