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Research & Development FAQs

What are HMRC’s rules for processing R&D tax relief claims?

When HMRC receive R&D tax relief claims they review all claims, begin an enquiry into any that raise a query and, if necessary, reach a negotiated conclusion if there is a continued dispute.

What do HMRC do once they receive my claim?

HMRC inspectors review all R&D Tax Credit claims for approval. The majority of claims that have been accurately prepared and contain all the necessary details will be accepted and paid.

In a small number of cases, the review uncovers questions or discrepancies that raise questions. These questions trigger an HMRC enquiry into your claim.

How long does the review process take?

The timing of your claim’s review depends on whether you are a large company or an SME.

HMRC’s target for processing successful SME claims is 28 days from when they receive your submission. This is not a guarantee, but what they aim for and there are several factors that have an impact.

HMRC doesn’t impose a time limit on their process time for large companies. This is because a large company claim is more complicated as it is tied up with your Corporation Tax Return.

Factors that influence the timing of the review process:

  • The complexity of your claim: including particular risk factors, the clarity and length of your supporting document, PAYE/VAT issues
  • HMRC’s workload: this is particularly heavy at financial year-ends
  • Time of year: festive season, summer holidays

What happens if HMRC start an enquiry into my R&D tax credit claim?

HMRC will contact you be email or letter, if they are starting an enquiry into your R&D tax credit claim. The 28 day processing rule is suspended and you should expect the enquiry process to take between several weeks to months to complete.

The outcome of this enquiry is partially dependent on how much co-operation you provide from the outset. You should respond promptly and in full to any requests for extra information, meetings with you and/or your ‘competent professionals’ or clarification of your existing evidence. HMRC need to be completely satisfied with the technical narrative of your R&D projects, your methodology and the financial calculations of your claim.

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.

If I have a successful enquiry, when will I receive my R&D tax relief?

During the enquiry, if HMRC declare some areas of your claim satisfactory then you can ask for a corresponding part-payment of your tax relief. On completion of a successful enquiry the remainder, or full amount, will be paid to you with interest.

Can HMRC launch an enquiry into my R&D claim after I have already received my money?

Yes, HMRC can start an enquiry into your R&D claim even after it has been fully processed, approved and the money’s in your bank account. You could be asked to pay back this amount, if the issues with your claim are not sort out.

What happens if I don’t agree with the outcome of the enquiry?

If HMRC and the taxpayer cannot agree with HMRC’s findings at the end of an R&D tax relief enquiry, they enter the negotiation part of the process. This continues until a solution is found which both parties find agreeable.

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