What is an R&D Enquiry
Like any other tax enquiry, an R&D enquiry is the process by which HMRC check in detail that the information on a tax return is correct and complete. They do this by asking questions about your return, either through meetings or more commonly through detailed correspondence to review your records. HM Revenue and Customs has the right to open an enquiry into any return as they are in time (please see point 2 below).
Menzies can play a crucial role in helping companies deal with R&D tax relief claim enquiries from HMRC. We offer expert guidance to help provide necessary supporting documentation, handle HMRC correspondence, and ensure that your R&D tax relief claim is substantiated, ultimately making the process smoother and reducing the risk of rejection and penalties.
Why do HMRC open enquiries?
Typically, HMRC will open an enquiry if they believe that there may be some incorrect information in the company tax return which has potentially resulted in a loss of tax or increase in losses for the company. However, some enquiries are also made at random.
We can assist with:
Appeals Process
If your R&D claim has been rejected and you’re concerned with the eventual outcome of this rejection, Menzies can assist. Menzies will guide you through the defence process and ensure that all the correct steps are taken to provide robust evidence, ensuring that all eligible costs and activities are fully substantiated.
Tax Advice and Technical Support
Menzies can provide specialist tax guidance such as ensuring compliance and documentation which can significantly impact the outcome of the enquiry. Menzies can also engage with your company’s technical experts to extract more evidence in relation to the nature of the work and its eligibility for R&D tax reliefs.
Corresponding with HMRC
Menzies will represent your company including arranging meetings with HMRC or presenting written evidence to defend the case for the R&D tax relief claim. Menzies will also work with you to collate and submit additional information, responding to queries, and negotiating on your behalf.
Support in the Preparation of Future Claims
Menzies will work with you to devise a mechanism for maximising compliance and ensuring that future R&D tax relief claims are submitted in a way that avoids similar issues with HMRC.
Email: obarry@menzies.co.uk
Phone: +44 3309 129263
Location:
Menzies LLP London
4th Floor
95 Gresham Street
London
EC2V 7AB
R&D FAQs
WHEN CAN AN ENQUIRY OCCUR?
An enquiry can be opened up to a year after the filing the tax return if filed on time e.g for a tax return for the accounting period ended 31 March 2022 was filed before the 31 March 2023, HMRC will only have 12 months from the date of submission.
If the tax return was amended after the filing deadline, HMRC have a year plus some extra time until the next quarter day. These quarter days are the 31 January, 30 April, 31 July or 31 October. For example, if a tax return for the accounting period ended 31 March 2022 was submitted on time (i.e. by 31 March 2023), then subsequently amended on the 30 June 2023, HMRC have until the 31 July 2024 to open an enquiry.
WHAT ARE THE TYPICAL STAGES OF AN ENQUIRY?
An enquiry begins with an opening letter providing HMRC’s reasoning behind an enquiry and any specific questions that they may have.
After you respond to these questions, there are three potential options:
• HMRC are satisfied with the response and the officer will close the enquiry with no further questions.
• HMRC respond with specific counterpoints and reference to the legislation.
• HMRC may seek to introduce amendments to the tax return or impose penalties.
In order to maximise the chances of option 1 and mitigate to risk of the alternatives, the initial response should therefore be as clear and robust as possible providing as much evidence and detail to support the actions and information provided in the submitted tax return.
However, if HMRC do any further concerns, there is likely to be multiple stages of back and forth until they issue their conclusion and any final supporting arguments. You are usually given the option to present any further counterarguments before HMRC issue the closure notice.
If you disagree with the outcome of the enquiry, you do have further options available to you. Please see below for these.
HOW LONG CAN AN ENQUIRY LAST?
An enquiry timeline can vary significantly based on response times and the number of responses required. However, this can potentially be a few months to a couple of years depending on the complexity and whether you decide to consider other pathways during the enquiry.
WHAT CAN I DO IF I DO NOT AGREE WITH THE ENQUIRY’S OUTCOME?
There are several options available including:
• Once the closure notice is issued, you have the option of appealing against the decision. You will typically be offered (and can request) an independent internal review of the enquiry decision by a more experienced officer.
• ADR – Alternative Dispute Resolution with an HMRC mediator between yourselves and the HMRC officer dealing with the case. This can help to resolve cases by ensuring engagement on both sides, clarifying assumptions and clearing up any misunderstanding.
• Appeal to Tribunal – 1st tier tax tribunal to appeal the decision made by HMRC.
Typically, you will need to respond against a decision within 30 days to follow the chosen course of action
WHAT DOES AN ENQUIRY INVOLVE?
This will include multiple stages of correspondence between you and HMRC as you explain the work or transactions undertaken, along with any supporting evidence and arguments for applying the treatment adopted. This may relate to specific areas or more general enquiries into your tax matters.
WHAT INFORMATION NEEDS TO BE PROVIDED IN A RESPONSE TO HMRC?
Information regarding your tax matters. For an R&D claim, this may include additional technical information to support your original claim. This will also require facts and references to the tax legislation to support any statements.
WHAT CAN BE THE FINAL OUTCOME OF AN ENQUIRY?
HMRC may accept the submitted tax position or amend the tax return based on their conclusions.
For an R&D claim, this could result in the claim being accepted in full, amended or rejected in full and the claim removed from the tax return. An amendment would result in tax being due. HMRC may also look to apply penalties should they believe that the taxpayer acted carelessly or deliberately.