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How to Avoid an R&D Tax Credit Enquiry and Still Get the Best Results

by Adam Park | August 20, 2021

The thought of a tax enquiry is enough to make any business owner nervous. Even when there is nothing to fear – who would want to go through that rigmarole? Any sane business owner wants to do two things when making an R&D tax credit claim. They want to get the best financial results and avoid an R&D tax credit enquiry.

Enquiries are time-consuming, and they can lead to your claim being reduced, declined, and even fines being issued by HMRC. In short - they're best avoided.

If you make a claim with Zest, you don't need to worry about enquiries. Due to our thorough R&D report methodology – enquiries are very uncommon on our claims. But even when they do occur, we’ll deal with them on your behalf, at no extra cost.

In fact - we’ve got a great track record with enquiries. We have never had a claim rejected or been sanctioned by HMRC. And any reductions in the value of our claims have only ever been minor - less than 1% of the total claim value.

But enough boasting. What about if you’re making a claim yourself, or with your accountant? Read on to find out how to avoid an R&D tax credit enquiry, or at least reduce the risk.

How to Get the Best Results and Avoid Enquiries

How do you manage these two, seemingly contrasting requirements? To maximise your claim, and minimize the risk of enquiry. In short - the answer is producing a report that clearly evidences your eligibility for the R&D tax credit, and how your costs have been calculated.

When writing a report for a claim, without significant experience, you may find it difficult to interpret the legislation in the context of your R&D. Some of the areas you should pay close attention to are detailed below. Mastering these will stand you in good stead to avoid an R&D tax credit enquiry.

Where to Focus to Avoid Enquiries

  1. Ensure you understand the eligibility criteria – for example there are restrictions on using the R&D tax credit if you’ve received state aid, or dependent on the size of your company.
  2. Take due consideration into which projects qualify for R&D, and even which parts of a project. Here it is easy to be too conservative, or too generous. By employing Zest’s specialist knowledge, you’re much more likely to get the right balance and make the most of the R&D Tax Credit scheme.
  3. Knowing what costs are claimable and qualify as relating to your R&D project. This takes time and experience. Claimable costs can easily by missed out, or not apportioned correctly. The result can be a significantly lower claim, or even fines being levied by HMRC for mistakes.
  4. Don’t forget to reduce your costs appropriately for sub-contractors or connected parties. Again, errors here are likely to lead to enquiries and fines from HMRC.
  5. Some of the other common mistakes when making a claim are detailed in this blog post: 6 of the Most Common Mistakes When Making R&D Tax Credit Claims.

We’ve reviewed claims made by clients or other advisors in the past. We have always updated them because on overage we’re able to double the pay-out for our client. Writing your own R&D Tax Credit claim or working with your accountant is possible – but there is almost certainly a higher risk of enquiry and sanctions, as well as the likelihood that you end up claiming less than you’re entitled to.

Dealing with an Enquiry

So it's come to this. You've received an enquiry letter from HMRC. The first thing to say here is - if you've checked you're entitled to the tax credit, and submitted an accurate and fair representation of your work to HMRC - you shouldn't be overly concerned. However, if you've claimed without meeting the eligibility criteria, overstated your costs, or ignored other restrictions, you could face fines up to 100% of the amount of tax relief you're claiming.

In your enquiry letter, you’ll be assigned a tax inspector and asked to provide a range of information. It’s important that the information you provide to HMRC is honest and accurate. Where your claim has been properly constructed, the additional information should support the claim document previously provided.

Zest R&D are experts in the field of R&D tax relief, with significant experience with HMRC enquiries. We can provide consulting services, to help you articulate why your work qualifies as R&D, and address the concerns raised by the tax inspector. If you are currently working through an HMRC enquiry – get in touch to discuss how we can help.

Can You Make a Claim Yourself?

If you’re determined to claim R&D tax credits without professional support, make sure you familiarise yourself with the tax legislation. The details of what projects and costs can be included in your claim are covered throughout our knowledge bank. Or you can find the information in the Corporate Intangibles Research and Development manual (CIRD) and the BIS definition of R&D.

But if you want to guarantee you’re getting the best returns, it’s best to seek the support of professional advisors such as Zest. All advisors will have different methodologies, some more thorough than others. However, you need to be comfortable that your advisor is claiming as much of your claimable costs as possible.

At Zest – we have a wealth of experience in enhancing and maximizing R&D tax credit claims. Our average claim values are consistently in excess of the regional averages for the areas our clients are based. We also regularly improve claims made by other accountants and advisors. If you're in doubt - take a look at our google reviews, or testimonials page.

So, if you’re concerned you’re not claiming as much as you should be, or that you’re being put at an unnecessarily high risk of enquiry, let us know. We can help you get the best results with R&D tax credits.

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