HMRC are the gatekeepers of the public purse when it comes to R&D tax credits; it’s ultimately their decision to award the relief or not. Essentially, HMRC has the power to abstain from paying any R&D tax relief until it is satisfied that the claim is accurate, genuine and meets all the eligibility criteria.
How do I know if my company qualifies for R&D tax credits?
To be able to claim R&D tax relief, your company must:
- Have undergone eligible R&D activities
- Be a UK limited company that is liable for Corporation Tax
- Have spent money on these R&D activities
Eligible R&D requires you to be seeking an advance in science or technology, something that is not obvious and requires some experimentation to achieve (also known as scientific or technological uncertainty).
Money spent on R&D could be staff costs, subcontractors, materials or any other of the qualifying cost categories.
So why might HMRC hold back my payment?
Getting your claim right first time is absolutely essential. If HMRC has any questions about the accuracy or preparation of your claim, they may begin a compliance check. In a compliance check, the usual payment-processing procedure lasting 28 days will not be applicable; instead, HMRC will withhold the payment until it is satisfied with the entirety of the claim and any additional information has been reviewed.
It’s important to note that even after an R&D tax credit payment has been processed and paid, HMRC are still within their rights to begin an enquiry. If the outcome of this compliance check is that HMRC is dissatisfied with any aspect of the claim, it may ask for the money back. HMRC also has the power to utilise the money for settling any outstanding tax liabilities.
Can HMRC make me pay a penalty if my R&D tax credit claim is incorrect?
If HMRC identify a mistake in an R&D tax relief claim, it may impose a penalty based on the Exchequer’s tax loss. How severe the penalty is will depend on whether HMRC believes the original claim was fraudulent, or that due care and attention was not given.
However, if it does believe reasonable care was taken, and the company’s tax record is otherwise clean, it may use its discretion and apply a penalty of ‘nil’, even if the R&D tax credit claim is rejected. You can demonstrate that you took reasonable steps to follow the rules by showing that you engaged with a R&D tax advisor, or that you read and understood the rules before making your claim.
How much might an R&D tax credit penalty be?
The size of an HMRC penalty is likely dependent on the circumstances surrounding the claim. If they have grounds to believe that the tax relief claim was deliberately evasive, fraudulent or inaccurate, penalties could be as much as 100% of the tax lost.
However, if a company is responsive and open with HMRC, and willingly provides any extra information required, a lighter penalty may be issued to reflect the mistake. It may even be possible to receive a reduction or abatement for good behaviour in addressing any errors, as long as you have conducted yourself in a helpful and sincere manner.
Penalties may also be suspended to give a company time to address the reason for the mistake. For example, it might need to improve its accounting practises or record-keeping. A review date must then be adhered to.
This is why it’s so important to speak to the experts
Tax Cloud is part of Myriad, an expert team of experienced R&D tax consultants. Our team takes compliance very seriously; that’s why we’re the only R&D tax advisor to offer a risk-free guarantee.
If your claim is queried by HMRC, we’ll be by your side at every step – at no extra cost. If your claim is ultimately rejected, we’ll pay back our fees and even compensate you for your time.
Our team is happy to answer any questions you may have, allay any fears and work with you to facilitate your R&D tax credit application to give you the best chance of a success and maximising your claim.
Sign up to Tax Cloud today to begin your R&D claim.
