Count on Zyla for expert R&D support

In the UK, firms engaged in research and development are encouraged to claim any R&D tax relief they are entitled to. 

According to HMRC, new analysis last year estimated that R&D claims were subject to 'error and fraud' worth £1.13 billion in 2020/21. Parliament's Public Accounts Committee (PAC) reports that HMRC reviewed 20% of claims before payment for 2022/23, saving an estimated £250 million.

HMRC has been urged to clawback erroneously paid tax credits for past years by both the PAC and the National Audit Office. In its R&D unit, 100 more employees have already resulted in an increase in inquiries and nudge letter campaigns.

Compliant claims management and managing claims that are being challenged have never been more important. 

As part of this process, HMRC takes the following steps:

• Payments to claimant companies are being checked before they are made

• Finding out why an amended claim or Corporation Tax return was 'incorrect'

• Checking claims, challenging amounts claimed, or determining whether activities qualify for R&D

• The Fraud Investigations Team writes to companies suggesting that the claims may not be true

• Conducting criminal investigations in order to prosecute.

Resolving your HMRC enquiries

We represent taxpayers with HMRC through the enquiry and disclosure process, often working alongside your regular accountant or other professionals such as lawyers. Learn more about how we support and guide taxpayers to reach agreement with HMRC on their R&D position here or call us on 0203 468 2241. 

How can your claim go wrong?

R&D claims can go awry after so many rule changes in the past few years, but there are a few common themes we help companies resolve. A perennial issue is proving that your project advances science or technology - either because you don't understand the rules or because HMRC doesn't understand the technical issues. Furthermore, there are issues regarding grants and subsidies, ownership structures, external workers, and cost allocation.

Here are 5 reasons why you should get expert help when correcting R&D claims

1. Facilitating voluntary disclosures

HMRC will get peace of mind if you inform them of mistakes in earlier R&D claims before they ask questions about the company's tax position. In the process of selling a business or subsidiary, companies sometimes make mistakes when they change advisers or perform due diligence checks. Based on your company's specific situation, an expert can advise you on how to make a 'disclosure' to HMRC and guide you through the process. HMRC's penalties may also be reduced if you approach them voluntarily.

2. Aspects of technicality

There are a number of complicated R&D rules - not only regarding what R&D is, but also what expenses are eligible for R&D tax relief. In order to ensure that companies' claims are robust, Zyla Accountants R&D team includes industry experts with years of experience.

3. How far back do you need to go in terms of time limits and behaviors?

The UK tax legislation distinguishes three types of behavior: innocent, negligent, and deliberate. Back taxes can be charged back in four, six, or twenty years, depending on the behavior. If the taxpayer or agent acting on their behalf carelessly or deliberately overstated the R&D claim, HMRC will investigate. Negotiating an agreement with HMRC and determining which behavior applies in your case is especially challenging, but applying the correct time limit is fundamental to limiting the amount of tax and late payment interest charged by HMRC. Our negotiation skills and experience are extensive.

4. Penalties with a tax implication

In every case where a R&D claim is found to be excessive, HMRC will automatically consider whether penalties are due, regardless of whether HMRC opens an enquiry or a voluntary disclosure is made. A penalty can be charged up to 100% of the incorrect tax, depending on factors such as:

• The company provided its adviser with the relevant information to prepare the claim

• Reliance on professional advice to the extent it was appropriate

• Whether the directors checked the claim as thoroughly as possible before submitting it.

Where the facts support the case for lowering the penalties, we can assist in making representations. Using a professional adviser and cooperating with HMRC will also help reduce penalties.

5. Allowing time for payment

R&D claims that were excessive will require the company to repay any reliefs it did not qualify for. Due to the current economic climate and its inherent cashflow pressures, that could present practical difficulties for the business. In order to settle the amount owing to HMRC in instalments, we can help you request a formal settlement incorporating a time to pay agreement. In this way, HMRC's Debt Management department will not have to formally pursue payment in full or debt enforcement action if assessments (tax bills) are not issued.

Contact Zyla Accountants for support with your R&D claim today.