The change in approach led to new questions and significant confusion. In this article, we’ll focus on one area in particular – how the department handling the enquiry may influence its outcome.

Where does an HMRC enquiry come from?

Compliance checks are carried out by different departments within HMRC’s Customer Compliance Group (CCG). This CCG is an essential arm in HMRC’s compliance framework, and the different directorates within this group ensure the right tax is paid and intervene where there’s any risk of non-payment.

If you receive correspondence from HMRC regarding a compliance check, it could be directly from one of these specific directorates. Let’s take a look at the different departments that you might encounter when working in R&D tax relief.

Wealthy and Mid-sized Business Compliance Directorate (WMBC)

The WMBC Directorate’s main objective is to ensure that large corporations, wealthy individuals, and mid-sized businesses pay the correct amount of tax in accordance with UK laws. They conduct risk-based compliance activities (including audits, investigations, and reviews) to identify areas of potential non-compliance. Using sophisticated data analysis techniques and intelligence gathering, high-risk taxpayers are targeted for further investigation.

The WMBC takes a relatively personal approach to compliance, and will actively engage with you to provide guidance and support. In their own words, their aim is “to put our customers and their compliance at the heart of everything we do by taking a ‘customer segment’ approach, focusing on customers rather than different types of tax, so we can target and coordinate our responses more effectively.”

You might feel this personal touch when the WMBC opens a compliance check into an R&D tax relief claim. More often than not, a named HMRC officer will lead the check and provide their email address and contact details on the letter. You can contact the officer directly, which can help the process run smoothly.

Individual Small Business Compliance Unit (ISBC)

The Individual Small Business Compliance Unit (ISBC) focuses on compliance among small businesses and self-employed individuals. Its core responsibility is to conduct targeted investigations and compliance checks to verify the completion and accuracy of tax returns. If they find any discrepancies, they might issue penalties or open further investigations.

More often than not, an R&D compliance check opened by the ISBC won’t indicate a named caseworker. You’ll also notice that the information requests tend to use a templated format, and may ask for information you’ve already provided.

But, the focus of the ISBC is to verify the accuracy of the claim, and double checking the information would seem like a reasonable method to achieve this. However, compared to the WMBC team, you might find them more challenging to work with. Over the last 12 months, the ISBC have been resistant to meetings or telephone calls with companies who want to discuss their R&D claims. This can make the whole process much more frustrating, as you’ll deal with a faceless, uncommunicative entity while still needing to adhere to their deadlines.

Fraud Investigation Service (FIS)

The Fraud Investigation Service (FIS) is responsible for tackling serious tax evasion and fraud across all taxpayer groups. Its chief aim is to identify and investigate cases of deliberate non-compliance with tax laws, particularly those involving sophisticated tax evasion schemes or criminal activities. The FIS uses a range of enforcement tools and techniques, including civil and criminal investigations, to effectively combat tax fraud.

In the context of R&D tax relief, the FIS may use nudge letters. These letters are designed to encourage businesses to review and amend their R&D tax relief claims voluntarily if HMRC has identified potential inaccuracies or inconsistencies. While the FIS team is a heavy-hitter (and they aren’t to be taken lightly), these letters don’t constitute a formal compliance check.

Instead, the letters typically highlight general areas of concern or common mistakes found in R&D tax relief claims. They’ll also encourage recipients to review their claims and make corrections where necessary. So, while less personal than a WMBC letter, a nudge letter from the FIS team still means that HMRC is trying to encourage you to think more critically about your claims. Doing so may avoid a compliance check further down the line.

HMRC Solicitor’s Office and Legal Services

The Solicitors Office and Legal Services team (SOLS) provides legal support and advice to HMRC. One of its key functions includes performing statutory reviews on R&D tax relief claims.

Here’s a brief description of their role and how they conduct these reviews:

Role of the HMRC’s Solicitors Office:

• Legal Support: The SOLS team offers legal guidance to various departments within HMRC, ensuring that tax enforcement actions and compliance measures are legally sound and defensible.
• Litigation: It represents HMRC in legal proceedings, including tax disputes, ensuring that HMRC’s interests are accurately represented in court.
• Policy Development: The office aids with development of tax policies and regulations by providing legal insights and ensuring that new policies are in line with existing laws.

Statutory Reviews on R&D Tax Relief Claims:

1. Review Request

If you were to dispute HMRC’s decision on an R&D tax relief claim, they can request a statutory review. The Solicitors Office then steps in to conduct an impartial review of the case.

2. Examination of Evidence

The office examines all the evidence provided by both the taxpayer and the HMRC compliance teams. This includes reviewing documentation, technical reports, and correspondence related to the R&D activities and expenditures claimed.

3. Legal Analysis

Solicitors assess the legal grounds of the claim and the initial decision. They will ensure that the interpretation of R&D tax relief regulations and guidelines has been correctly applied.

4. Decision Making

After thorough review, the SOLS team either upholds the original decision or amends it based on their findings. They then provide a detailed explanation of their decision to the taxpayer and HMRC.

5. Resolution and Communication

The outcome of the statutory review is communicated to both the taxpayer and the relevant HMRC departments, providing guidance on any further steps as needed.

If you have a dispute about a claim escalated to this stage, you should receive a fair, unbiased decision. The SOLS team wants to ensure that claims are handled in line with the letter of the law, they’re not just another way for HMRC to tell you that you’re wrong.

Next steps for dealing with enquiries

Hopefully you’ve got a bit more context and information around the various departments at HMRC. It’s important to know the differences in how they behave, as that’ll affect how you interpret and respond to HMRC’s correspondence.

Once you know where you stand, you can then tackle the enquiry much more effectively. But if you have more questions about HMRC enquiries, we’ve got more answers. We recently updated our Enquiry Guide to include everything we’ve learned about the ‘new HMRC’, so you can be well-equipped to defend R&D claims and support your clients.