Disputed R&D tax relief claims for software –an impartial review can help
08 February 2023
Original content provided by BDO United Kingdom
As HMRC continues to clamp down on ‘unjustified’ claims for R&D tax relief, it is becoming even more apparent that it regards claims for software and other IT projects as particularly ‘high risk’: we are increasingly being asked to review such claims where HMRC is disputing them.
In our experience, R&D claims prepared for companies by claims handling firms are particularly likely to be challenged by HMRC. While this does not automatically mean that they are all excessive or spurious, it does mean that the company concerned may well be caught up in a long-running dispute with HMRC and is less likely to get the amount of tax relief or cash that was initially suggested by the agent. Read 10 reasons your R&D tax relief claim may get you into trouble.
Waiting more than 40 working days?
HMRC’s current performance target says that it will aim to settle R&D tax relief claims within 40 working days (extended from 28 days due to increased focus on the area). It doesn’t always meet this target, but if you have been waiting much longer for a response from HMRC, it is likely that a challenge to your claim is on the way.
We know from the R&D claims that we submit for clients that good documentation, strong technical descriptions of the project, and a forensic approach to cost analysis for the claim - all bound into a detailed report to support the claim - will usually tick all HMRC’s boxes and drastically reduce the risk of a costly challenge to your claim. Our R&D team includes software engineers who can dig into the technical work involved in your R&D project and ensure that the technological advance you were seeking is clearly explained with the level of supporting detail that HMRC requires.
In depth analysis helps resolve disputes with HMRC
If your R&D claim is under enquiry by HMRC or has been held up (and may end up being disputed), it is always a good idea to get an expert to review the validity and quantum of your claim. We find that in many cases, simply providing greater detail to HMRC on the nature of the R&D work and detailed breakdowns of costs can give HMRC the comfort they need to approve a revised claim. In some cases, we also find that qualifying costs have been missed.
With input from our Tax Disputes specialists, we can ensure that HMRC’s concerns, whether expressed through a technical query or full enquiry, are handled efficiently and in the best way to resolve the issue cost-effectively for your business.
For further advice or support – please contact our team: Claire McGuigan, Lorraine Nelson.