You might have heard that there have been some big changes in the world of R&D tax credit claims. Not only have HMRC introduced new verification processes, but they’ve also more than doubled their R&D compliance team.

As R&D tax credit specialists, we keep our eyes on any change to tax relief schemes – and recently there’s been a lot. So here’s our simple guide to everything you need to know about the enhanced approach to compliance HMRC is taking for 2024.

Let’s dive in.

The recent changes from HMRC

As a result of identifying over £1 billion in fraudulent or incorrect claims, HMRC has significantly strengthened its compliance procedures.

Here are the key highlights of what’s changed as a result:

Let’s take a closer look at some of these key changes in more detail and explain the reason behind their introduction.

One-to-many (OTM) compliance checks explained

HMRC has introduced a new approach called ‘one-to-many’ compliance checks, targeting claims for specific sectors.

Rather than always reviewing claims one by one, HMRC now casts a wider net and is looking at entire industries. You might notice this new approach in action if you receive standardised questions that feel templated or if communications come from a generic HMRC email rather than a named officer. 

The process tends to move more quickly too, with HMRC expecting swift responses to their enquiries. It’s a more efficient system for them but it does mean you need to be ready to respond promptly if your industry comes under review.

Why has this been introduced?

By reviewing similar businesses at once HMRC can spot suspicious patterns more quickly, making fraudulent claims harder to hide.

High-risk sectors are under scrutiny

HMRC is particularly focused on claims from industries they consider unlikely to conduct qualifying R&D. 

While they don’t publicly share their criteria, common triggers include:

  • Claims from typically ‘non-technical’ sectors. For instance, it’s routine to see innovation in the technology sector but not in the construction or hospitality sector. This doesn’t mean claims from that sector won’t be approved, just that they’re less usual so might require review from an HMRC compliance officer.
  • Companies with SIC codes that don’t typically align with R&D activities.
  • Businesses reporting R&D costs disproportionate to their size or industry.

Why has this been introduced?

By focusing on industries where R&D claims are unexpected or unusual, HMRC can concentrate their resources where they’re most likely to find non-compliant claims.

What does this mean for your business?

First things first – make sure your house is in order before you think about submitting a claim. Your SIC code needs to accurately reflect what your business actually does. This might seem like a small detail, but it’s one HMRC is paying close attention to now.

Proper detailed documentation is more crucial than ever. Ensure all of your project costs are documented and saved for your claim submission as well as any potential review.

Here’s your to-do list before you submit an R&D claim:

  • Ensure your SIC code accurately reflects your business activities.
  • Document your R&D processes thoroughly from the start.
  • Keep clear records of all project costs and timelines.

What if you’re selected for review?

If you’re pulled up for an HMRC compliance check, don’t panic. 

Prompt replies and detailed responses are your best friend. And remember, the extra scrutiny is to catch genuinely fraudulent businesses, not people using the tax relief as it’s intended. 

However, we understand that if you’re counting on R&D tax credits, it can be a daunting prospect. Our expert team of tax accountants are always ready to lend their years of experience to your case if you need guidance.

Have your R&D claim handled by seasoned experts

While we can’t guarantee that any claims we handle won’t be selected for review, what we can tell you is that we take a meticulous approach to any claims we prepare. 

Our R&D tax advisors consider every aspect of what HMRC might want to see ahead of time and gather evidence meticulously but with minimal interruption to our client’s BAU work. 

That’s why we have a record of unchallenged claims that we’re extremely proud of. Of course, if your claim is selected for HMRC compliance checks – we’ll handle every step of the process to ensure the best possible outcome.

If you’d like to explore how our expert accountants could support your R&D claim, contact us today.