In April 2024, we wrote about HMRC’s aggressive approach to checking R&D claims at the time. HMRC’s approach to Research & Development (R&D) tax relief claims has evolved since 2024, with a notable reduction in new enquiries and the introduction of stricter compliance measures. While this has curbed abuse, genuine claimants still face challenges, particularly with legacy enquiries. This article outlines the key changes, practical steps for claimants, and what to expect in the coming year.
HMRC’s R&D enquiries before 2024
At the time of our previous article, and in the year prior to that, we were seeing lots of enquiries in respect of R&D on the back of what HMRC considered abuse and boundary pushing in the area, with unscrupulous agents making claims in cases that did not qualify for R&D relief. Previously HMRC’s approach to reviewing R&D claims had been notoriously light-touch, which had created opportunities for bad actors. Our advice remains that if a professional firm appears to have more salespeople than technical officers, they are one to avoid.
In response to this, HMRC challenged R&D claims, with a huge amount of scrutiny, often undertaken by inexperienced inspectors. The scrutiny applied to every enquiry opened, including genuine claims and we have seen instances of those with genuine claims withdrawing them in order to avoid the professional costs and prolonged time required in defending the claim, which was considered collateral damage by HMRC. The Chartered Institute of Taxation (CIOT) wrote multiple open letters to HMRC about its concerns over the approach, as at times HMRC’s officers did not seem willing to consider the possibility a claim qualified for R&D relief.
We also saw Fraud Investigation Service (FIS) enquiries with a very rigid process, minimal communication and the ultimate conclusion being FIS ‘correcting’ the return, representing a very questionable use of HMRC powers supposed to correct obvious errors or mistakes. These are not necessarily the types of case for FIS or the way they should operate, the team ordinarily focuses on the most egregious tax fraud.
In addition to the enquiries, new legislation came into force including the requirement for the submission of the Additional Information Form (AIF) in support of any claim, giving HMRC access to more information initially to check the claim.
What is the current position?
There has been a significant reduction in the number of new HMRC enquiries, which suggests HMRC believes it has gone some way to tackling abuse in the space. HMRC’s enquiries, together with the new legislation and guidance, has had the desired effect on those that were making illegitimate claims.
Having said this, some long-running legacy enquiries do remain, and there are cases where we are not seeing any softening of HMRC’s approach, with the same hard-nosed attitude persisting. In many of the examples we are seeing where such an enquiry is still ongoing, the common theme tends to be that a company has been attempting to navigate the enquiry in-house, or is relying on a professional advisor who perhaps does not specialise in HMRC enquiries. In such situations we strongly recommend seeking appropriate professional advice in order to progress matters towards a successful outcome.
In addition, HMRC’s dedicated R&D disclosure service has been up and running for some time now and our initial reactions have been positive. Firstly, its existence is clearly a welcome step for all parties, meaning that if a mistake is discovered it can be swiftly corrected without the need for a protracted enquiry. Further to this, we have also found the HMRC officers who are reviewing disclosures do so in a fair and pragmatic way, their approach a breath of fresh air in contrast to the approach experienced previously.
Looking forward
We do not expect the level of compliance in this area to ever return to pre-2023 levels, as HMRC has now recognised the need for maintaining the deterrent effect and the potential for abuse of a crucial relief for UK businesses. Having said this however, we expect the overall number of claims to reduce, especially with those submitted by bad actors and which realistically do not qualify for relief, largely having been filtered out by HMRC’s recent activity.
HMRC published a consultation inviting comments on a proposed system of advanced clearance for R&D claims, rather than the current ‘submit claim and then check it after’ system. This clearly shows HMRC’s intentions and whilst it would represent a seismic shift, we can see the advantages for clients, particularly if the advance clearances can be submitted on a high level and therefore potentially reduce professional costs for clients, who previously would have had to incur the entirety of the cost, for a claim which could potentially be rejected at a later date. It remains to be seen if and how this will be implemented, as it would require significant input from HMRC in approving each claim in advance, but they may see it as a necessary investment in order to properly police claims and ensure compliance.
Practical Guidance
- Ensure your R&D claims are well-documented and reviewed by experienced professionals.
- If you receive an HMRC enquiry, respond promptly and seek specialist advice.
- Use the R&D disclosure service if you discover an error in your claim.
- Stay informed about ongoing consultations and potential changes to the clearance process.
HaysMac can help
Should you be subjected to a HMRC investigation or have discovered an inaccuracy please contact Danielle Ford, Partner and Head of Tax Disputes and Resolutions on 020 7969 5591 or dford@haysmac.com. At HaysMac we have a wealth of experience in guiding clients through difficult situations and obtaining the best possible result.
