28/04/23

HMRC ‘Nudge Letters’ | Research and Development Claims

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In a previous article, we explained the intention of a ‘nudge letter’ submitted by HMRC to encourage both individual and corporate taxpayers to review tax returns to ensure that all financial gains nave been fully declared to HMRC.

Additionally, we explained the nature of ‘Campaigns’ regularly run by HMRC when focusing on specific tax issues, such as those highlighted in that article.

HMRC’s Campaign activity continues having recently despatched ‘nudge letters’ to those who have sold goods or services through ‘Online platforms’ or created content on ‘Digital platforms’ and those recorded as being ‘Persons of Significant Control’ in unquoted companies.

The most recent HMRC ‘Campaign’ is directed at R&D Tax Relief Claims upon which Tim Thompson now focuses.

Kangs Solicitors fields a highly experienced Tax Team, offering a wealth of experience developed from representing companies, directors and Individuals in respect of both civil tax and criminal tax issues.

We are highly acclaimed for our work in tax fraud related investigations by the leading law directories The Legal 500 and Chambers UK& Partners.

R&D Tax Relief

R&D tax credits is an incentive established by the Government in 2000 and provides the opportunity for limited companies to receive a reduction or rebate on Corporation Tax for funds spent on eligible Research and Development (‘R&D’) irrespective of whether or not successful.

The R&D work encompasses development of new products or services and also improvements to those already existing.

R&D is defined by the Income Tax Act 2007 as follows:

‘1006 Meaning of ‘’research and development”

(2) ‘’Research and development means activities that fall to be treated as research and development in accordance with generally accepted accounting practice.

(3)The Treasury may by regulations specify activities which—

(a) are to be treated as being “research and development” for the purposes of this section, or

(b) are to be treated as not being “research and development” for the purposes of this section.’

HMRC guidance provides that, inter alia, when determining whether a business is eligible for R&D tax relief it will consider:

  • What was the advance in science or technology that was being sought
  • What the R&D project was, and if relevant, what the larger commercial project was
  • The particular scientific or technological uncertainties that needed to be resolved to seek the advance
  • In what way does the project go beyond what was the current state of knowledge
  • Why the knowledge or capability sought was not readily deducible by a competent professional in the field
  • When the particular uncertainties were overcome
  • What activities, within the project, fall within the statutory definition of R&D for tax purposes

Earlier this year HMRC wrote to over two thousand companies requesting that they review their previous R&D Tax claims.

How Can We Assist?

HMRC continues to issue an ever increasing number of ‘nudge letters’ in pursuit of its Campaigns, the scope of which expands constantly.

‘Nudge letters’ are a prompt based on specific data and may contain a ‘Checklist’ for the business to follow.

Information provided after receiving a ‘nudge letter’ may well be regarded by HMRC as having been ‘prompted’ by its intervention amounting to a ‘non-voluntary disclosure’. Accordingly, any penalty imposed could be higher than if the disclosure was voluntarily provided before the ‘nudge letter’ was sent.

Accordingly, immediate and detailed attention to any ‘nudge letter’ received is essential as the consequences of failure to provide an accurate and timely response may be significant. The Team at Kangs Solicitors is highly experienced defending investigations conducted by HMRC and will be delighted to assist you.

Additionally, our Team can:

  • Advise on all your obligations following receipt of a nudge letter,
  • Advise on your tax affairs,
  • Advise on disclosure obligations to HMRC,
  • Assist in disclosure preparation,
  • Liaise with HMRC on your behalf

If we can be of assistance, our Team is available via telephone 0333 370 4333 and by email info@kangssolicitors.co.uk.

We provide initial no obligation discussion at our three offices in London, Birmingham and Manchester.

Alternatively, discussions can be held virtually through live conferencing or telephone.

Hamraj-khan

Hamraj Kang

Email Hamraj

07976 258171

020 7936 6396

0121 449 9888

Tim-Thompson

Tim Thompson

Email Tim

0121 449 9888

020 7936 6396

0161 817 5020

John-veale

John Veale

Email John

0121 449 9888

020 7936 6396

0161 817 5020

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