The Tools Needed to Defend a Claim During R&D Tax Relief Enquiries

Genuine R&D tax relief claims are being caught in HMRC’s crackdown on fraud and error, and we find ourselves defending more enquiries than ever.

Unfortunately, defending a claim during an enquiry is a time-consuming and resource-intensive process. This will be a particular concern for accountants, whose workload has already increased substantially as a result of the new compliance measures.

We stand by every single claim we have submitted and will support clients throughout the entire process. Every enquiry is unique, but there are certain approaches and methods that can help bring about successful and timely outcomes.

What is the enquiry process like? 

It’s important to know that the opening of an enquiry is by no means a foregone conclusion in favour of HMRC. Recent successes of ours include a teleconference that ‘flipped’ an enquiry outcome entirely from a full denial (with closure notice drafted) to a full acceptance of a £750k tax benefit claim.

However, HMRC has acknowledged that there have been some ‘teething problems’ with the capability of its volume compliance team responsible for opening the enquiries. This is certainly making the process more challenging than it needs to be.

Communication is a major issue. Correspondence from the volume compliance teams is not sent by a named individual, suggesting that cases may not have the same caseworker from start to finish.

Being unable to communicate with the same caseworker through multiple rounds of correspondence is disjointed, and doesn't allow for rigorous testing of a position. Unfortunately, this causes issues when discussing complex and technically challenging concepts via written correspondence. 

HMRC is also guiding caseworkers not to allow agents or their clients to record teleconferences, advice which contradicts manuals that state clients may not be legally stopped from recording these meetings.

Having a clear record and paper trail is a vital part of making claims — and this should be replicated throughout the enquiries process. A clear record is particularly important as knee-jerk decisions are being made on the qualification of projects citing Google searches and drawing superficial conclusions without engaging in thoughtful dialogue with experienced, competent professionals. 

In some cases, projects have been dismissed because caseworkers have found contemporary sources online, despite the fact that those sources were actually published in the years since the project was first carried out. Likewise, online searches yielding examples of similar products have resulted in a claim being dismissed, but under enquiry, they in fact turned out to be products made by the claimants themselves.

What evidence do you need to defend a claim?

Having contemporaneous evidence from the time of the project is one of the most compelling tools in your arsenal when it comes to defending a claim. It has never been more important for companies to keep records at each stage of their R&D work, and we reiterate this point regularly with our clients.

This evidence should support the level of expenditure included in the claim, and ideally, there should be documents such as timesheets and records of consumables. Where these are unavailable, then we need records which support the logic used to estimate these.  

Evidence from the time the project was taking place should demonstrate the challenges the company encountered and that they were non-readily deducible. Usable evidence comes from email chains, research conducted, and the record of results from experimentation or trial and error.

You should also collate evidence of the project’s results, which may have been shared with special interest groups, published in articles or scientific journals, or showcased in conferences.

How do you structure your case?

It’s important to keep an open mind and consider utilising all available options within the compliance process. Formal and informal appeal processes have both been shown to be effective in triggering an open-minded review of the case.

From the outset of preparing our case, we ensure we have access to a competent professional who can demonstrate knowledge in the field of science or technology and separate these from commercial elements of a project. This does mean that the compliance process is a resource-intensive exercise requiring input from technical team members both from the claimant and their tax expert.

We highly recommend organising teleconferences with HMRC. These provide excellent opportunities for caseworkers to engage with competent professionals in a more thoughtful manner.

You can never eliminate the chances of an enquiry being opened. A reputable and experienced R&D agent will be thorough and targeted in generating a compliant and robust claim the first time, minimising any challenges at enquiry.

If you work with a specialist, make sure to select an agent who stands by every one of their claims and has sufficient resources to support you throughout the entire process. They will be experienced in the process and will ensure the full extent of the compliance process is explored for the effective defence of a claim.

This article appeared in Accountancy Today on 16 January 2024.

Ryan Author:

Mehul Kyprianou-Chavda
Senior Manager, R&D Technical