Why might Revenue want to audit my R&D Tax Credits claim?

The R&D Tax Credits scheme is one of the most generous government tax rebates Irish businesses have ever seen. But while tens of thousands of companies have reaped the rewards of R&D Tax Credits since its 2004 launch, Revenue have always kept a close eye on compliance.

Most mistakes in an R&D Tax Credit claim are completely innocent. But fraud is, unfortunately, not unheard of.

As R&D tax claims are essentially based on honest self assessment of your R&D work, it’s not surprising that Revenue can be - shall we say - finicky.

What happens with an R&D Tax Credit audit?

So you’ve sent off your R&D Tax Credits claim and now you’re sitting back waiting for the rebate to roll in. All well and good. Except now Revenue has suddenly got in touch to launch an audit. Ouch.

Rule number 1: Don’t panic. Clients who have worked on their R&D Tax Credits claim with us at Myriad Associates only get audited extremely rarely. Sometimes it’s just a random spot check. But those who have gone it alone in completing a DIY claim will have left themselves much more exposed.

Generally speaking, Revenue will want to look at your claim in its entirety. It will usually:

• Check your project is definitely eligible (if you’ve worked with us on it then you know it is)
• Ensure the costs and activities you’ve included are accurate and reasonable
• Review the technical and financial evidence to prove your company actually did the work when you say it did.

Revenue enquiries are increasing; it’s something they’re really hot on. And as making a claim is notoriously complex, it’s incredibly easy to fall foul of the rules. On top of that, Revenue is within its rights to not only look at a company’s R&D Tax Credit claims, but its wider tax issues too - sometimes going back years.

So why might Revenue come knocking?

It can be for all sorts of reasons. But in our experience there are a few commons ones. Outside of random spot checks, they include:

Not addressing the criteria

You’re supposed to be pretty au fait with the rules around claiming before you start - and be able to demonstrate this to Revenue. The R&D project you’ve worked in must be in a field of science or technology. That’s not to say you have to be a science or techy company per-se (you don’t). Neither does your R&D project even have to have succeeded - it could have completely failed. But somewhere along the line, a scientific or technical challenge must have been undertaken and invested in, the outcome of which wasn’t obvious to a competent professional. We can’t flog this point enough.

A lack of supporting evidence

Whilst it’s not the end of the world if you’re missing some records, especially if you’ve not claimed before, you really do need to be able to prove your R&D project costs and time apportionment. If Revenue suspect you don’t have accurate supporting evidence to hand, you’ll stand out from the crowd. And not in a good way.

However, companies that have provided a comprehensive technical report and fully backed-up costings for their R&D project are much less likely to attract Revenue attention.

Your R&D costs have raised an eyebrow

Say you’re a tiny company of just a handful of employees and haven’t claimed R&D Tax Credits before. You’ve recently taken on a large R&D project that has cost you an absolute fortune, leading to a really substantial R&D Tax Credit claim. Yes this may all be all right and proper, but the sheer spending amount for such a small company may make Revenue look twice.

Likewise, if you’ve claimed a few times before and now suddenly your new claim is super massive, Revenue may again want to investigate. You’ll then need to be able to justify it fully.

You drifted off the “technical” point

This is an easy mistake to make.

Revenue aren’t interested in operational or management challenges. They only want to know about the technical and/or scientific ones. So, what is the technology that’s been created and what problem does it solve? Focus on the systematic research and keep it concise. Avoid waffle too.

Your wording is too general

Even your project name can set you off on the wrong foot with Revenue.

Imagine this:

Two companies are submitting identical R&D Tax Credit claims (unlikely, but hear us out). The first company calls their claim “AI next generation” while the second company calls it “developing a bi-directional logic level conversion”. Which one is more likely to be successful? The second one. Why? Because it’s less generic and far more descriptive.

The takeaway message here is to be specific and precise when describing your R&D project, right from the outset. It’ll help keep the auditors at bay.

Whatever you do, don’t try to tackle R&D Tax Credit issues on your own

There are many reasons why putting together an R&D Tax Credit claim on your own is a really bad idea. We recently wrote an article for our sister site in the UK that goes through why in more detail. It’s aimed at our UK audience, but also strongly applies to companies claiming in Ireland: Why Reach Out To An R&D Tax And Funding Consultancy?

R&D Tax Credit audits can be stressful, not to mention expensive if you end up having to pay your award back. However, this risk is drastically reduced if the claim is properly prepared in the first place.

If your company has been landed with a Revenue enquiry, you’ll need a team of R&D specialists in your corner. Myriad Associates can guide you through the next steps, helping you to answer a Revenue enquiry and make sure a mutually acceptable outcome is reached. It’s something we’ve done for nearly two decades, and there’s not much we haven’t seen.

We will help you by:

• Answering your questions and putting your mind at rest
• Getting in touch with Revenue on your behalf to inform them we’re taking your case on
• Going through any correspondence you’ve received, before reviewing your claim in full
• Making changes to your claim where needed
• Developing a strategy for any negotiation.

If Revenue has contacted you about your R&D Tax Credits claim or you’d simply like to start an application, call our friendly team now on +353 1 566 2001. Alternatively, use our contact page to drop us a message and we’ll get back to you ASAP.