In January HMRC issued another 2,000 nudge letters as they continue to crack down on fraudulent R&D tax claims.

Why is HMRC sending out nudge letters?

HMRC has seen an increase in fraudulent claims, and they believe that third-party agents have been deliberately targeting companies from specific sectors to make inaccurate R&D claims.

To increase compliance enforcement activity, HMRC dispatches thousands of nudge letters in January to companies they have identified as being at risk.

What is in a nudge letter?

A nudge letter is not a compliance check into your Company Tax Return. Instead, it is designed to ensure your claim is correct. This allows you to address any potential errors in your company accounts, and it’s designed to prevent a more prolonged investigation.

With this in mind, HMRC has listed seven questions to help you review your previous R&D claim:

  1. Have you read and understood the HMRC guidance on R&D?
  2. Have you considered the conditions for making an R&D claim? Are you happy that the project is seeking an advance in the field of science and technology?
  3. Do you understand what you’re claiming for?
  4. Who has helped with the supporting R&D report, and are they qualified to do so?
  5. Have you read the R&D report and do you agree with its contents?
  6. If you’re working with a third party to make a claim, have they answered your questions satisfactorily?
  7. Does this claim seem to be too good to be true?

What should you do if you receive a nudge letter?

If you receive a nudge letter that opens with: “Research and Development (R&D) tax relief – help to confirm you are eligible. We are writing to you as you have previously claimed for Research and Development (R&D) tax relief”, don’t panic just yet.

Revisit your tax returns and make sure everything is accurate. Also, check the guidelines and qualifying conditions for R&D tax relief, and go over your qualifying costs and the content of your technical narrative.

If you enlisted external assistance in your R&D claim, review any points that require clarification with the specialist who provided advice.

Although another review of your R&D claim could potentially avoid an HMRC compliance check, otherwise known as an enquiry, it’s also wise to plan ahead for such an investigation. An enquiry is an official investigation where they audit your previous claim and determine whether the projects and costs you have reported are eligible.

Ask your advisor to share the claim report

If you’ve worked with a reputable R&D tax credit advisor, you will have seen the claim report and discussed its contents. You’ll likely be confident that everything is accurate.

Sadly, not all advisors discuss the claim report with their clients before sending it off to HMRC. If you get a nudge letter from HMRC without seeing your report first, contact your advisor immediately and ask that they go through it with you before filing again.

What should you do moving forward?

HMRC is only intensifying its compliance enforcement activities, with countless enquiries on the rise. As they move forward in their mission to combat fraud even further, this trend most likely won’t be changing anytime soon.

Essentially, the chances of your claim being reviewed by HMRC have increased, so it is now more important than ever to pick a reliable R&D tax specialist.

Have you received a nudge letter, or are you seeking a trusted partner to help you build your R&D tax claim?

We’re here to help. Over 1,000 UK companies have trusted EmpowerRD’s R&D platform and specialists to help them build optimised, compliant R&D tax claims. Please get in touch with one of our experts today to learn more about how we can help your company.