Enquiries are becoming more common across the industry, as HMRC rightly crack down on abuse in the scheme. They have taken a strict approach and the enquiry rate has ballooned from 2% to a reported 22% in 2022/23.
This has resulted in the first annual decline in R&D claims submitted in the UK for 10 years, from around 85,000 to 65,000. As a result, this has released pressure from the market and many advisors have welcomed this change, however there is a prevailing sense that smaller companies will be deterred from claiming due to this uncertainty.
Our Position
Our position at Wilby Jones has always been consistent: any opportunity to interact with HMRC should be welcomed. This is a strange concept to most advisors who shy away from enquiries but to us it makes perfect sense. If we don’t engage with HMRC, we can’t understand the nuance of their current processes. By openly communicating with HMRC, we can best defend our clients and, most importantly, prevent future enquiries where possible and maintain our enquiry rate of 2%.
It’s important for our clients to understand that reports will change over time as they work with us and our approach adapts to each case through the court system as we learn from our conversations with HMRC. As a result, we’ve often seen three critical aspects missing from other advisor’s reports which increase the chance of enquiry.
Subsidised and Sub-contracted R&D
The most common point that HMRC raise is who completed the R&D activity. As most commercial projects operate within a chain, it’s important to ensure that double claiming doesn’t happen.
Multiple companies in the chain claiming for R&D is contested in almost every enquiry and has had significant media coverage in the Quinn Construction, Haddee Engineering and Collins Construction cases that all resulted in First Tier Tribunal. Despite this, it’s rare that an advisor sets out the relevant legal arguments to show the chain of R&D in the first submission to HMRC. It’s imperative to get ahead of questions that will inevitably be asked should an enquiry be opened.
Project Timelines
Another area of concern that’s often lacking in advisor’s reports is timelines. During the enquiry, HMRC will question the project timeline and the stages needed to complete the project. It’s vital that this information is provided up front to avoid your claim being scrutinised. Our years of experience working with HMRC have shown us that inspectors need to confirm project timelines as part of their review process. Providing clear details on project timelines is therefore essential for a strong, successful claim.
Aside from that, it’s important for an advisor to assess the stages of a project to show where the R&D would naturally fall. Should an advisor not enquire about the stages of a project, it’s likely the report will fall short of HMRC’s requirements.
Competent Professionals
The final area that’s frequently overlooked is the analysis of the professionals at the claimant company. Based on the enquiries we’ve defended, this is incredibly important to HMRC. It can be contentious as no-one likes to be questioned on the validity of their competence, however HMRC must know if a systematic approach has been applied to address any technological or scientific uncertainty. Essentially, HMRC needs assurance that the individual who’s overseen the R&D has sufficient industry experience or other qualifications, to be well placed to advance knowledge.
Some advisors undertake a cursory analysis of the claimant but at Wilby Jones we look at three levels. We examine the company as a whole, analyse the senior team and detail the competence of the leaders of each project. Therefore, we can be certain that HMRC have the correct information to sign off the report.
Choosing Who to Work With
There are many options when choosing an R&D advisor and finding the right one should be carefully considered. We always encourage clients to ensure any advisor is chartered through an accounting or tax organisation, that they have a positive track record with HMRC enquiries, and that they understand your business to give you the best advice.
