Around one in five R&D tax relief claims now face investigation as part of HMRC’s broader crackdown on non-compliance. Even if you’re claim is legitimate, there’s still a chance HMRC could come knocking. So, how should you respond? Whether your submission is being scrutinised by HMRC due to a Mandatory Random Enquiry Programme or poor record keeping, here are some tips that can help you resolve an enquiry quickly and efficiently.
Preparation before submitting
Firstly, your report should be designed to proactively address any potential questions HMRC may raise. While enquiries can never be entirely avoided, this approach can significantly reduce risk. For example, does your report have a coherent technical narrative? There are some key things your adviser should be doing which will indicate if you should stick or switch advisers when facing an enquiry.
For instance, the following documentation should be well organised:
- Project plans
- Meeting minutes
- Technical reports
- Contemporaneous notes
- Staff time sheets
- Invoices
- Financial records
Stages of an R&D enquiry
To help manage an enquiry effectively, it’s helpful to break the process down into the key stages an adviser would typically face. Understanding these stages bring structure and transparency to what can otherwise feel like an open-ended process. A typical R&D enquiry is resolved through the following stages:
Phase 1 – First Contact Engagement
This phase relies on quick and professional responses to HMRC to establish control from the outset. Before submitting any documentation, it’s sensible to conduct an internal review to spot any weaknesses in your claim.
- Confirm deadlines and preferred communication methods.
- Decide on representation: Who will be the main point of contact (internal expert, external advisor)?
- Organising the evidence
- Create a central hub for all requested documents.
- Map the requested information directly to your internal documentation
- Internal Review and Gap Analysis.
- Review the evidence before submission. Are there any weak spots? Prepare clear, written explanations for potential ambiguities.
Phase 2 – Technically Addressing the Enquiry –The ‘R&D Test’
Once the groundwork is in place, the focus shifts to how the claim is presented and defended. This stage is about clarity and credibility. It’s important to align the narrative of your R&D in a way that stands up to HMRC scrutiny, the following points should be considered.
- Structure the technical narrative. You must clearly link the activity back to the statutory definition of R&D and be in line with the questions HMRC ask in enquiry letters.
- Presenting evidence clearly: Use diagrams, timelines, and summaries for non-technical reviewers.
- Financially support the Claim: Use evidence to support all costs claimed.
- Justifying expenditure: Clearly linking staff costs, consumables, and subcontracted R&D costs to the qualifying activities.
- Differentiate between qualifying R&D activities and routine development/commercial work.
Phase 3 – Managing Meetings and Interviews
This phase largely focuses on direct communication with HMRC. Meetings are increasingly being used by HMRC to review R&D claims as they a offer quicker and more dynamic approached to written correspondence. These discussions are not only a key information gathering tool, but can significantly influence the outcome of an enquiry. In order to communicate effectively to HMRC on these calls, consider the following:
- Preparation is crucial – Anticipate questions by preparing speakers beforehand.
- Maintain a consistent and truthful narrative.
- Understanding the body’s position: Why are they challenging specific elements?
- Strategic concession versus firm defence: Knowing when to concede a minor point to protect the core claim.
- Ensuring the final agreement is documented correctly.
- Understanding next steps if the resolution is partial (e.g., rights to appeal).
During this stage of the enquiry, your adviser should push for teleconference to ensure effective, smooth communication between them and HMRC. It’s important your adviser is comfortable leading this call and preparing the client so they know what’s required of them. The client must be sure they draft in the right contact to explain to HMRC the R&D activity carried out. For instance, it’s not effective to have an engineer on the call when the project lead is the best person to provide key information about the R&D activity. Competent knowledge of the company and project should be conveyed to HMRC on these calls to give your company the best chance of resolving the enquiry.
Post-Resolution – Learning and Future-Proofing
Once an enquiry has been closed, it can be easy to draw a line under it and move on. However, it’s important to reflect on the process and draw out the lessons learnt from successfully defending the enquiry. It will help strengthen future claims and ensure you’re even better prepared should another enquiry arise.
For the client themselves, it’s important that they:
- Clearly document the entire process and the outcome.
- Note any specific feedback from the body regarding your documentation or approach.
- Update internal documentation standards based on the enquiry’s findings.
- Schedule periodic internal reviews of R&D claims before submission.
Without a competent adviser to support you through the process, resolving an enquiry can be extremely challenging. Ensure you choose an adviser who is open about their enquiry rate and process. Having the right partner can be the difference between a stressful review and a smooth, successful resolution.
