R&D Tax Credit HMRC Enquiry (successfully defended)
HMRC is increasingly challenging R&D tax credit claims. Here we explore a recent successful defence of a sizeable claim on behalf of a UK Fintech company.
It all started with a threatening fraud letter from HMRC just after Christmas...
This was a company caught in the crossfire of HMRC's response to 'erroneous', 'boundary-pushing' or downright 'fraudulent' R&D tax credit claims.
After responding to the 'fraud' letter (with copious amounts of supporting information), the HMRC challenge turned into a formal enquiry.
Admittedly, the claim was fairly sizeable and it makes perfect sense that HMRC would want to 'check' these sorts of claims, but a detailed technical report and calculations were filed with the submission of the tax return.
(Couldn't these checks have been completed internally within HMRC (like in the good ole days!), without the need for a formal enquiry...?)
Alas, no.
We spent eight months, largely retreading the information provided in the original report, over the course of six rounds of arduous and lengthy correspondence (I'm convinced that 95%+ of the information that we (re)shared was contained in the original report).
✅ The Good News = we received a closure notice agreeing the R&D claim in full with no/zero/zilch/nada amendments 🙌 🚀
❌ The Bad News = not many companies would have the resources nor expertise to cope with this level of scrutiny. The 'fraud' letter alone would have been enough to send many (legitimate) companies running for the hills... That's before several rounds of further detailed and technical correspondence.
It's worth noting that my client in this case is a jewel in the crown of the UK Fintech sector but regrettably this time around (this is their 3rd claim) they have inevitably been left with a bitter taste regarding their experience of the UK R&D tax relief incentive.
I can't help but feel that it's now starting to feel a lot like the UK is closing for R&D and that's a real shame as let's not forget that these sorts of fast growth tech companies are geographically mobile...