Accounting Web: Engineering firm fined for invalid R&D tax relief claim

Date: December 3, 2019

An engineering firm has been fined £26,000 after a tribunal ruled the company had wrongly claimed nearly £57,757 in research and development tax credits.

An engineering firm has been fined £26,000 after a tribunal ruled the company had wrongly claimed nearly £57,757 in research and development tax credits.

Coventry-based engineering consultancy Teksolutions-Inc Limited claimed the tax credit on £398,000 losses accrued between February 2014 and October 2015, but was unable to provide any evidence of the R&D costs being incurred, a tribunal found.

All records had, according to the company director, been lost or destroyed. HMRC even tried to help recover the records using its powers, the hearing in Birmingham was told.

Following further questioning and correspondence with HMRC over 12 months from August 2016 to August 2017, it was found no costs had actually been paid. Instead, according to the judgment provided by HMRC earlier this month, the costs were merely accrued in the company accounts.

This resulted in the company being given a significant penalty, as opposed to an R&D tax credit.

Case comment: Nigel Holmes, head of R&D technical operations at Catax

“This is every company boss’s nightmare and there are key lessons to learn from it.

Firstly, it demonstrates the importance of good company record-keeping. If HMRC starts asking questions, it is vital you can provide them with the evidence of your expenditure and income in all its forms. If you have no evidence to back up your claims, you risk falling foul of HMRC and being penalised.

Secondly, it shows that HMRC is happy to work with companies, providing guidance where needed. Never be afraid to approach HMRC for advice where there is confusion or uncertainty just make sure you do then listen to them and follow the guidance given.

Thirdly, and most importantly, it highlights how important it is that companies fully understand the R&D tax relief system or seek professional advice before filing a claim.

While separate R&D records are not required, companies must be able to justify all their R&D costs and have paid them before claiming.

The basic principles of R&D tax relief are simple but, as with most tax issues, the devil is in the detail. At the very least, it is sensible to call in an expert to check or advise on the claim.

While it makes sense for companies to try and maximise the value of their claims, it is only with experience that businesses will get a thorough understanding of the different qualifying categories and costs, which enables them to do this with confidence.

Robust procedures need to be followed when working on R&D claims for good reason. The last thing any company wants is to have their claim for a tax break returned as a fine for claiming wrongly.”

Read more here

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