HMRC R&D Enquiries on the Rise: What You Need to Know

An HMRC officer may enquire into a company tax return, providing they give notice to the company of their intention to do so within the time allowed. In this article, Megan Young, Senior Consultant, R&D Technical, explores what those timescales are, and what the scope of the enquiry is in different scenarios.

How Long Does HMRC Have to Open an Enquiry?

The timescales in these cases are clearly set out in Paragraph 24 - Finance Act 1998:

• If the return was delivered on or before the filing date, notice of enquiry may be given at any time up to 12 months (from the day on which the return was delivered).
• If the return was delivered after the filing date, notice of enquiry may be given at any time up to and including 31 January, 30 April, 31 July, or 31 October following the first anniversary of the day on which the return was delivered.
• If the company amends its return, notice of enquiry may be given at any time up to and including 31 January, 30 April, 31 July, or 31 October following the first anniversary of the day on which the amendment was made.

However, what can be included in the scope of the enquiry may not be as clear, even for caseworkers and officers at HMRC.

HMRC R&D Enquiries

Generally, an enquiry into a company tax return extends to anything contained in the return or required to be contained in the return (Paragraph 25 - Finance Act 1998). In respect of an HMRC enquiry into an R&D claim, the caseworker will investigate both the validity of the project itself against the guidelines in CIRD81900 and the costs related to the projects. This will include a review of the activities associated with these costs to ensure they are valid and the correct project boundaries have been applied in each case.

However, there is a critical limitation that must be considered regarding enquiries as a result of amendments that may have been neglected in some instances. If the notice of enquiry is given:

(a) as a result of an amendment by the company of its return, and

(b) at a time when it is no longer possible to give notice of enquiry under paragraph 24(2) or (3), the enquiry into the return is limited to matters to which the amendment relates, or which are affected by the amendment.

To put this into perspective:

In relation to a company tax return submitted on time on 31 January 23, but then amended on 22 March 23, the enquiry window for the whole return ends on 31 January 24, and the enquiry window for the amendment alone ends on 30 April 24.

At Ryan, and possibly at other firms, we have seen instances where enquiries have been opened because of subsequent amendments (losses carried back). However, in these enquiries they have also included the first amended return, despite it being out of time for the first amended return’s enquiry window. HMRC has subsequently closed these enquiries, but it still has a detrimental impact on the taxpayer and their advisers who have to spend time and effort resolving these errors.

Another important area of concern is resubmissions because of a correction issued by HMRC. As was seen in the case of Hallamshire Estates Ltd v. Walford [2004] STC (SCD) 330, where a return is delivered by the filing date, but it is HMRC that subsequently issues a correction, it is the original enquiry window that applies.

It is so important that before any time is spent collating a response, claimants check the validity of the enquiry.

If you are a claimant that is currently being affected by an R&D tax credit enquiry, whatever the stage, or if you are an accountant/adviser that has submitted R&D tax relief claims on behalf of clients, we are here to help. From compiling and defending claims, to supporting you in understanding the legislation and applying it to your circumstances to secure the best possible outcome. Ryan’s R&D Enquiry Resolution service is made up of a team of technical specialists, tax analysts, and chartered accountants who are committed to resolving R&D tax relief enquiries from HMRC.

If you need help defending an ongoing enquiry, simply fill in the form below and one of our expert team members will be in touch.