HMRC Enquiries into R&D Fraud – Correcting past errors

There has been a lot of comment in the tax world about HMRC’s recent activity looking into Research and Development (R&D) claims. Beyond ‘normal’ enquiries, HMRC’s Fraud Investigation Service (FIS) has also been issuing letters to some companies stating that they suspect fraud in relation to a claim.

In many cases we have seen, HMRC’s concerns about fraud have been unfounded. However, what if there has been a fraud? We cover a few of the considerations below.

‘Unknown’ R&D Fraud

What if you have used a consultant who drafted a claim for you, and the consultant knew it did not qualify? In other words, someone else told you that some expenditure qualified, and let’s assume that you believed them to be competent, but it turns out that they were worse than incompetent, they have committed fraud and now you are unwittingly involved.

Firstly, in terms of culpability, if you genuinely believed that your adviser was qualified and competent and gave them correct information about your company, then there is no fraud on your part. You can only have committed a fraud if you knew that the claim was incorrect when it was sent to HMRC. Also, if you realised later on that it was incorrect, and you rectified the position, you are still not into fraud territory. Mistakes happen, but fraud is about deliberate errors.

However, if you are ever caught in a situation like this you should still proceed with caution. Even if HMRC can see that your adviser was acting fraudulently, you will need to present your case in terms of what you knew and believed precisely and carefully. If the claim was fraudulent, then any tax credit will almost certainly be repayable to HMRC, but you will still need to robustly argue your case in relation to penalties.

Making unguarded comments, perhaps when you feel angry that you have been taken advantage of, may give HMRC ammunition to try to argue that you were careless, or maybe argue that you did know that your adviser committed fraud. Imagine commenting in the heat of the moment to HMRC along the lines of: ‘I should have known they were dodgy…’ HMRC may then argue that, if you thought your adviser was ‘dodgy’, you must have been a knowing, if passive, participant in the fraud. You would then enter the realm of higher penalties. Enlisting the help of experienced professionals in these types of situations ensures that the facts of your case are argued properly and dispassionately, without emotion clouding the problem.

‘Known’ R&D Fraud

What if you knew that your R&D claim did not qualify when it was submitted? Perhaps you gave incorrect expenditure information to an R&D consultant, or you made a claim yourself that you knew was wrong, or you knew that someone working on your behalf was making an incorrect claim?

Whatever the reason for making the incorrect claim, if you knew it was not right when it was submitted, you are into the realm of ‘deliberate’ or fraudulent behaviour. Fraud is a criminal act and HMRC can investigate cases of fraud on a ‘criminal’ basis – in other words they can seek to prosecute.

However, most cases of fraud are investigated by HMRC on a ‘civil’ basis. In this case, there will be no prosecution, but HMRC will want the tax, interest and probably also significant penalties./

Often HMRC will investigate cases of fraud using Code of Practice 9 (COP9) which is sometimes also referred to as the Contractual Disclosure Facility (CDF).  We have a more detailed page on COP9 which you can find here.

If HMRC offers COP9, it expects you to cooperate and fully disclose any errors. If you fail to cooperate, or you lie, or you try to hide something during that process, HMRC may start a criminal investigation. Putting things right under COP9 is far preferable to suffering a criminal investigation, so it is important to engage in the process properly and with professional help.

It is also possible to ask HMRC for COP9 if they have not offered it to you already, and you know you have committed a fraud. If you know your claim was wrong, but HMRC just write, without offering COP9, and suggest that they believe that a fraud has occurred, it would be worth considering asking for COP9 to ensure that your disclosure is handled on a civil, not a criminal, basis. We can help you to weigh up the options available to you, so that you can correct past errors in the way that is most suitable to your circumstances and protects your position.

How can we help?

We have helped hundreds of clients through HMRC investigations and disclosures, and many of those have involved a fraud. Whether you have unwittingly been caught up in someone else’s fraud, or you have knowingly submitted an incorrect R&D claim to HMRC, we can help you to put things right. Get in touch with our friendly, experienced team on for a free, no obligation initial consultation.

Get In Touch

You can get in touch with our friendly and experienced team on 0203 675 8122 or email jeremy.johnson@intaxltd.com, or call him on 07739 093 976.