What’s with all the enquiries?
The question is, why are HMRC opening more enquiries? Isn’t the money there to be claimed on for innovative businesses? Well, yes, it is. But there’s much more to it than that.
The R&D scheme is there for innovative businesses, of all sizes, from all industries. When the scheme started, it was utilised almost exclusively by the manufacturing and software industries, particularly on the back of the ‘dot com’ boom. Fast forward nearly 20 years and there are over 18 recognised industries claiming against the scheme, with each year bringing new claims from new horizons for HMRC to deal with.
Although the motive for opening an enquiry varies, from poor recordkeeping to incorrect data submitted, through opening enquiries into new and upcoming industries in the R&D world, HMRC can request supplementary information to further understand R&D in that area, enhancing their knowledge and setting a benchmark of what is expected from the industry, something which is being seen in construction.
More claims means more enquires
The R&D scheme is a hugely rewarding incentive, brought into play in the year 2000 by the UK government. The scheme, which is superintended by HMRC, has played a huge role in growing businesses of all sizes, as well as the overall economy, since it’s inauguration.
With an average claim size of £64,000, it’s understandable that HMRC play due diligence in assessing claims which are submitted to them. As a result of the schemes snowballing popularity, the 17/18 year hit an all-time high in claim submissions.
HMRC have only recently recovered after the being inundated with these submissions in December 2018, which was further worsened in March 2019 when another abnormally high number of claims arrived on their plate.
Within these claims, HMRC have seen an increased uptake in the scheme across all industries, along with the fact that they’ve stabilized their workload after being besieged with submissions. As a result, the forecast is a perfect storm for HMRC to open enquiries across all sectors, something which is starting to be murmured across many key players in the R&D world.
The types of claims submitted is changing
A good example of this is the construction industry, despite being one of the most innovative industries around, only 4% of R&D claims come from the industry. Yet, the claims which are being submitted from this space are some of the most varied and technically challenging when compared to R&D guidelines.
Although there’s no doubt there is a huge array of R&D undertaken within the construction industry, the rising number of claims from this field is very different to what the scheme has been built upon and as a result, further understanding is needed by HMRC to understand the foundations of modern-day innovation in the industry.
How to avoid HMRC enquiries
As the saying goes, by failing to prepare you are preparing to fail. R&D claims are valuable and often very lucrative, HMRC need justification that you are overcoming technical uncertainty before paying out tax payers money to your business.
A thorough narrative and robust methodology are the best ways to not only complete a claim, but maximize everything you’re due from it. You do not need to bamboozle HMRC with explicit jargon and over complicated process descriptions to prove to them what you are doing is cutting edge, in fact that could work against you. In clearly explaining what you’ve sought to achieve, what you are doing different and clearing demonstrating how your activity fits in with their R&D guidelines, your projects will speak for themselves.
Finally, keep those records. There is no better way to demonstrate to HMRC that you are competent when it comes to claiming R&D if you have a historic record of data. The time capturing process certainly shouldn’t be disruptive to your business operations, but should easily fit alongside innate business procedures. Through discussing R&D developments at team meetings to using reason codes to capture it against allocated projects, it all helps foolproof any claim when it’s time to submit.