From our experience over the past 10 years, HMRC enquiries can take a very long time to resolve particularly if there is a difference of opinion.
The most common problem we see from clients who have used other providers or self-claimed, is where HMRC have asked for a full retraction of the claim. It's not just about the claim being rejected - it can also be about the annual relief in the future that will be almost impossible to justify if you cannot win an argument with HMRC on retraction of a claim. We have found that 9-12 months of protracted detailed questioning is normal. We don't mind - this is what we do - but what impact would that have on your business?
HMRC Tax Inspectors can and do ask for documentation - e-mails, spreadsheets, invoices, contracts, an other written correspondence. How good is your administration? Can you provide an audit trail to defend your position? If you used a third-party - will they provide you with adequate support and documentation? HMRC have a clear mandate to protect tax receipts and robustly validate claims. They also have the patience and resources to do this thoroughly. Having an experienced, expert advisor by your side to support you through the process will reduce the impact on your time, provides reassurance and give you the best chance of a successful defence.
If agreement cannot be reached through a compliance check, document requests can become more onerous before eventually going to a tribunal. Requests can ask for all project documents, including all plans, meeting notes/minutes and e-mails between staff discussing the R&D. Furthermore, all correspondence and e-mails between the company and any third party discussing any aspect of the R&D, including all suppliers, to include internal and external e-mails, memos, file notes in any form (paper and electronic). This list is not exhaustive!
HMRC told us of a compliance check that led to an investigation for tax fraud on the basis of an R&D tax credit claim for £850k that took 2.5 years to complete.
HMRC assessment time limits - two years, isn't it? Wrong - try 20 years.
Although you can amend your tax returns up to two years back, HMRC can review your company's records six years from the end of the relevant tax period if they find that your or your agent has been careless.
However, they can extend this to up to 20 years if they believe you or your agent's actions have been deliberate e.g. describing transactions inaccurately or in a way likely to mislead. For the purposes of assessing that loss of tax, the person will be treated as having deliberately brought about the loss of tax which resulted from the inaccuracy whether or not it was their intention.