Research & Development – Enquiry closed with HMRC owing the client unpaid credit

The Issue

An intermediary of Blick Rothenberg introduced us to the client in June 2024. They had received an enquiry for two R&D claim periods and had been in discussions with HMRC since October 2024. Our team became involved early in the process which is of great use as we have the experience and expertise to navigate the queries that HMRC present.

The Solution

After speaking with the client, our team reviewed the original claims and HMRC enquiry letter. Our findings were that the R&D claims had been prepared in-house by a non-R&D technical specialist, and therefore the information supplied to HMRC was commercial in nature. It was therefore not a total surprise that HMRC were seeking to understand the technical nature of the projects given the tax credit figures of >£1m.

Our team quickly realised that the most meaningful first step would be to interview the technical leads and write up the technical projects closely in line with the guidance to demonstrate how the requirements had been met. Concurrently, the calculations provided were analysed with the financial and technical teams of the client to help us gain a better understanding of the roles of each individual within the business (as the main cost category claimed for was staff). It was noted that a restriction on one specific cost had accidentally been applied across the entirety of the staff costs, and therefore the client had underclaimed.

Following our first response to HMRC, we were met with delays and a change in inspector which prompted us to make a formal grievance on the basis of mishandling of the enquiry and distress caused to the client by the ongoing queries. We made it clear to HMRC that we were intending to apply for alternative dispute resolution, at which point HMRC responded by offering a discussion with their internal software specialists, otherwise known as CDIO. This was a productive meeting where our team and the client were satisfied with the approach and the queries raised. From here, HMRC and CDIO were not satisfied with one of the advances sought in the project and the client, in the interests of expediency, conceded on this point and put forward the relevant calculation.

The Outcome

Whilst the removal of costs associated with this advance reduced the claims’ value, the previous underclaims as a result of the restricted costs resulted in the client retaining the full seven-figure credit over two years, plus an additional £40k. No penalties were levied, and the client was delighted with the result.