If your company operates within the fields of science and technology, or is otherwise engaged in the creation of innovative products, services or techniques, you may be aware of the availability of HMRC Research and Development tax credits.
The process of claiming R&D tax credits involves the submission of a claim via your Company Tax Return CT600 form, detailing the full amount of expenditure that qualifies for this type of Tax Credit. You may also be eligible to make backdated claims.
In order for your R&D tax credit claim to be accepted, it’s important that you explain in detail that your company:
- Is looking for an advance in science and technology
- Has had to overcome uncertainty in order to achieve the desired results
- Is enclosing full information regarding how it has tried to overcome this uncertainty
- Has looked into a matter that couldn’t be easily worked out by a professional in the field
If your company is an SME, with fewer than 500 staff members and a turnover of under €100m or a balance sheet total of less than €86m, you may be eligible to make SME R&D tax relief claims. You may also be able to claim Advance Assurance, which allows you to make your first three R&D tax relief claims enquiry-free.
If your claim is successful, you may be awarded a tax deduction of up to 130% of any amount spent by your company on R&D, which may result in a considerable reduction on your tax bill or even a cash payment. You may also be able to recoup up to 14.5% of any surrenderable loss made.
As a larger company, you may qualify for Research and Development Expenditure Credit, which is calculated at 11% of your R&D expenditure and is a form of Corporation Tax relief. Other companies and SMEs may also claim this if they have been contracted to undertake R&D for a larger company.
Why Might My Company Face HMRC R&D Tax Credits Investigations?
There may be a number of reasons why HMRC decides to look into your R&D tax credits claims. The body occasionally opens investigations at random to ensure that the relief is being provided correctly, and your business may find itself the subject of a few enquiries as a result of this.
It may also be the case that a change in your company’s circumstances has been discovered, and HMRC may wish to check that you still qualify for the R&D tax relief claims you have made. They may also be interested in learning more about your industry or any technology you are currently working with in order to ensure that all claims of a similar type are managed consistently.
However, they may also have been alerted to a potential mistake or issue with one of your claims, or an inadequate explanation about what it is your staff will be doing.
What Happens During R&D Tax Credits Investigations?
Your claim for HMRC R&D tax credits should be approved within 28 days. It’s most likely that it will be accepted with no further questions – particularly if you have provided in-depth details to accompany it.
However, you may receive a request for further information, usually either in the form of an informal phone-call or a letter. Alternatively, you may be asked to meet with investigating officers in person. Again, this should not cause alarm and may just be the result of the claim for HMRC R&D tax credits being your first, or for an amount that is particularly substantial.
However, it is almost certainly worth getting in touch with a knowledgeable solicitor who can advise you and accompany you to the meeting in question, in case further action is taken against you.
What are the Potential Results of R&D Tax Credits Investigations?
If your claims for HMRC research and development tax credits become the subject of an enquiry, and you are able to provide all information required to the satisfaction of the investigating officers, it is likely that nothing further will happen, and you will be permitted to continue claiming R&D tax credits, though depending on the length and complexity of the enquiry, the repayment of any funds may be slightly delayed.
If you were unable to provide the full information requested as part of any R&D tax credits investigations, your claim may be reduced. You may also be charged penalties for carelessness or negligence.
In one 2016 case, three men were arrested on criminal charges of fraud for attempting to orchestrate a scam involving HMRC R&D tax credits that would otherwise have been worth approximately £300 million over the following five years.
If you are suspected of serious tax fraud following R&D tax credits investigations, HMRC may launch a further civil investigation into your company’s activities under Code of Practice 9. If this occurs, you will be immediately informed of these steps and provided with a copy of the aforementioned code.
At this stage, you will have the opportunity to make a full disclosure of any omissions or errors within your claim in the form of a detailed report. This must be submitted within 60 days.
HMRC can investigate a company under Code of Practice 9 for any suspected transgressions dating back up to 20 years, depending on the seriousness of the alleged offence. If any individuals within your company are found to be guilty of tax evasion, they may be sentenced to up to seven years in prison and/or an unlimited fine, and company directors may be disqualified.
However, if the offence is thought to amount to one of cheating the public revenue, there is the potential for a sentence of up to life in prison.
The Future of R&D Tax Credits Investigations
In 2018, the government announced a cap on the amount that loss-making companies could claim in R&D tax credits. The cap will come into effect in April 2020, and will equate to a company’s total Pay As You Earn (PAYE) and National Insurance contributions (NICs) liability multiplied by three. This change was effected in order to prevent fraud attempts on SME payable tax credit.
If you are concerned about any R&D tax credits investigations into your company’s affairs, you should seek legal assistance as soon as possible.
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