What Happens During A Revenue R&D Tax Credit Audit?

Meeting the criteria

When Revenue carries out an R&D Tax Credit audit, it’s essentially checking that a claim meets all the relevant legislation and is 100% accurate. Occasionally, checks may be carried out at random but usually an audit has been launched for a very specific reason.

Even the most minor errors, however innocent, will very likely be scrutinised. Revenue may also need to review the claim from both a technological/scientific and a tax/financial perspective. To this end, there are two main criteria a claim needs to have met:

The Science test: Has the specific definition of R&D activities been adhered to, and has satisfactory supporting documentation been provided?

The Accounting test: Are all the R&D expenditure figures correct and disclosed in full? Have accurate records of R&D work been maintained and are there any gaps?

It’s crucial that claimants understand these tests and what they need to do in satisfying Revenue inspectors. The R&D tax and funding experts at Myriad Associates are best places to guide you here, and we can even work with Revenue on your behalf. Find out more about us.

What implications might result from an R&D Tax Credit audit?

If any inaccuracies or overstatements are discovered in your R&D Tax Credit claim (whether innocent or not) then Revenue will likely expect full or partial repayment of any benefit awarded. Sometimes interest and fines will also be added.

This may also be the case if Revenue believes you’ve only supplied limited or incomplete documentation, or if supporting records are missing. Again, the Myriad Associates team is best placed to make sure a Revenue audit doesn’t happen.

Are Revenue audits more common in companies who’ve never claimed before?

Revenue officers aren’t interested in the industry, size of claim or whether a claimant has applied before; if an error has occurred they will find it.

Audits typically happen when some additional clarification is required. However, it can be true that first time claimants are more prone to mistakes simply because they’ve never done it before. Often they will need extra assistance in preparing for the audit meeting, and the Myriad Associates team has worked with many first time filers on this over the years.

Revenue also reserves the right to audit a claim for R&D Tax Credits up to four years after the return has been filed. This is even the case if the benefit has been awarded and received already.

What will a further review or Revenue audit involve?

Claimants will be contacted by Revenue either by letter or phone call in the first instance. It is at this point we strongly recommend getting in touch with our team for advice before you formulate a reply.

As the first step of an audit, Revenue will generally send out a questionnaire containing 23 questions that cover the details of the R&D claim. These questions will seek to clarify elements like how the R&D claim meets the science and accounting criteria, and why you believe your project is eligible. Revenue also expect claimants to demonstrate what the link is between the qualifying project(s) and R&D expenditure in the claim.

When you work with Myriad Associates, we will have all this information ready by the time you receive your Revenue questionnaire. We can also offer support if you have any questions or concerns along the way.

What next?

Once Revenue has received your answers, inspectors may decide they’re satisfied and award the R&D Tax Credits (hopefully). However, if anything is still unclear then another letter may be sent requesting further clarification. They have also been known to request a meeting and/or a site visit. If this happens, our specialists will help you prepare for the meeting, and we can facilitate where required too.

What will the meeting cover?

Two aspects of the claim will be examined to assess eligibility and your applicable expenditure. Once the inspector understands more about the background of your company, he or she will then want to hear from you as the claimant. You will need to explain verbally what your R&D project was about, and how you interpret the latest Revenue guidelines. After that, the inspector will review the costing information, and look to discuss whether the claim amount is commensurate with the work undertaken. Again, more supporting documentation may be requested which highlights the importance of high quality record keeping.

Do audits really happen that often?

Yes, they do. As with all tax affairs, honesty is always the best policy because it’s not a case of if mistakes are spotted but when.

We also understand that responsibility for the Revenue auditing has now been passed to the Districts and is no longer controlled by Revenue centrally. This may be a sign that R&D Tax Credit audits could increase significantly going forward (especially with the government tightening its belt post-coronavirus).

My R&D activities are confidential. Will Revenue protect this confidentiality during an audit?

Revenue will normally appoint an external technical expert whose job it will be to review your R&D activities from a technical/scientific perspective. This individual will then report back to Revenue to give his or her opinion, whether relevant R&D has been undertaken as defined by Revenue legislation.

Before the technical expert is briefed, Revenue should:

• Make the identity of the external technical expert known to you
• Explain what information it intends to disclose to them
• Obtain a confidentiality agreement signed by the expert.

Claimants are also allowed to object to the use of a particular expert, if they believe a genuine conflict of interest will occur. However, this must be demonstrated and not simply be an opinion.

Prevention is better than cure

The best thing to do is to avoid a Revenue audit in the first place. When you work with us in creating your claim for R&D Tax Credits, you know you’ve got the backing of a specialist R&D funding team behind you. We will take you through the claims process from start to finish, collaborating your figures and creating the perfect technical report that gets you the R&D Tax Credits you deserve.

Send us a message today or call our Dublin-based specialists on +353 1 566 2001.