Over the last couple of years, HMRC has substantially increased the number of enquiries into R&D tax relief claims made. This has been an industry-wide issue and has substantially undermined claimants’ confidence in the value of R&D tax relief. In a small proportion of cases, maybe 10%, some months after a claim has been submitted (and perhaps paid) you will receive a letter from HMRC stating that they need more information to support the claim. This is a time-consuming and generally vexatious process which can take several months or years. Generally, the process follows similar steps:
- You will receive a letter from HMRC opening an enquiry into the tax return and asking for additional supporting evidence. This will include a 3–4 week deadline for a response.
- The claimant provides the requested information
- HMRC reviews additional information and will come back with more questions, sometimes several times
- HMRC eventually writes its conclusions and requests ‘final arguments/evidence’
- Further information is provided by the claimant
- HMRC issues its decision letter
- The claimant can request various stages of review culminating in an appeal to the tax tribunal. Prior to the tax tribunal, all reviews are conducted by HMRC’s own staff so there is limited or no true independent review prior to the tribunal.
Documents commonly asked for in the course of enquiries.
- Project documentation including drawings and designs
- Test results
- Photos of prototypes
- Internal records such as meeting minutes and internal emails
- Invoices and accounting records
- Competent professional biography for each project
- Project timelines, with key milestones, relating to uncertainties faced
- Dated evidence of the activities having taken place, including for example email histories relating to all projects