What are the possible outcomes of an R&D tax relief enquiry?
The best case scenario is that you answer all of HMRC’s queries and your claim, although delayed, is processed successfully. You may be given some pointers on how you can improve your next R&D tax credit claim.
The worst case scenario is that HMRC finds you have made an accidental or deliberate mistake and not only denies your claim, but imposes a financial penalty.
The scale that unites these two positions allows for inspectors to make judgements which incorporate your attitude and willingness to cooperate during the enquiry. The rates for R&D tax relief penalties are calculated on how much tax has been lost from the Treasury as a result of your ‘error’.
If you have a solid, evidence based claim and are amenable during your enquiry, the inspector can award a penalty of ‘nil’. If your claim is flimsy or deliberately misleading, the maximum fine is 100% of the tax lost. There is also the potential for suspended fines to be issued for a set period of time, until a specific problem with your claim is fixed. For example, you improve your record keeping in line with the requirements of an R&D Tax Credit claim by the given deadline.