HMRC issues over 2000 Nudge Letters to R&D Claimants
HMRC has recently written to over 2,000 companies as part of its ever-increasing compliance activity to crack down on fraudulent and inaccurate R&D tax relief claims.
The ‘nudge’ letters encourage recipients to check that their previous R&D tax relief claims are complete and correct, and where inaccuracies are identified, companies are urged to make amendments to their company tax return.
There has been growing concern about a rise in R&D tax relief fraud in recent years. In its latest annual statistics report, HMRC estimated that £469m was lost through fraud and error in its two R&D schemes in 2021-22, equivalent to 4.9% of Corporate Tax R&D reliefs.
To address these concerns, the government has increased compliance resource and activity, and the specialist R&D team focused on SME compliance has more than doubled in size.
What is a Nudge Letter?
A nudge letter asks you to ensure your tax affairs – including your R&D Tax Relief claims – are up to date. HMRC have confirmed that:
Nudge letters begin with the following:
“Research and Development (R&D) tax relief – help confirming you are eligible. We are writing to you as you have previously claimed for Research and Development (R&D) tax relief.”
You will receive a nudge letter if HMRC finds an issue with your financial records or suspects you’ve misused the R&D Tax Relief scheme.
Nudge letters give you the chance to update any minor errors in your company accounts. Addressing smaller issues can mitigate lengthier, more time-consuming investigations, which are designed to explore more severe breaches of tax law.
It is important to note that a Nudge Letter is not an enquiry letter, which would normally state that HMRC are carrying out a compliance check.
What should I do if I receive a Nudge Letter?
If you prepared the R&D claim yourself, you should be familiar with the guidance referred to in HMRC’s letter. The guidance defines R&D for tax purposes and lists qualifying costs. It is important you understand the guidance, and how it applies to your claim.
If you have an adviser you should show them the letter. Your adviser should answer any questions you may have. It is essential that you understand the details of the claim, as any risk is yours and not your adviser’s.
If after reviewing your claim you feel there are projects or costs which do not qualify for R&D tax relief tax relief a correction should be made as soon as possible.
Ignoring the letter or failing to make any necessary corrections may lead to an HMRC enquiry. If during an enquiry errors are discovered penalties will be higher than if they had been corrected after receiving the ‘nudge letter’.