Handling an R&D Aspect Query from Revenue Ireland: Best Practices for Success

In Ireland, the Research & Development (R&D) tax credit scheme offers significant financial incentives to businesses engaged in innovation. This generous tax credit can substantially reduce a company’s tax liability by offering a credit of up to 30% on qualifying R&D expenditure.

However, the eligibility of projects and costs is complex and can sometimes be unclear. To address this, businesses may receive an R&D Aspect Query from Revenue Ireland, requiring them to provide further clarification on their R&D tax credit claim.

An R&D Aspect Query can seem daunting, especially given the potential financial impact. Therefore, businesses must understand how to handle this query effectively, ensuring they provide the necessary information and evidence.

What is an R&D Aspect Query?

An aspect query is a form of non-audit intervention by Revenue. It is a formal request from Revenue for additional information or clarification regarding a company's R&D tax credit claim. This typically arises when Revenue is unsure whether certain activities, projects, or expenses listed in the company’s claim meet the scheme’s eligibility criteria. Revenue uses this query to clarify before approving or rejecting the tax credit claim.

The timelines of R&D Aspect Queries are not a science. There is no guarantee that a claim is not going to be queried, even if it has been paid out. Even the new pre-filing notification cannot guarantee that a claim is eligible. Revenue has the right to investigate any claim up to five years after the end of the accounting period.

R&D Aspect Queries begin with a letter from Revenue, usually asking a standard set of up to 25 questions. These are designed to confirm that the work you’re claiming for is eligible, and that you have claimed the correct expenditure.

Why do businesses receive R&D Aspect Queries?

R&D tax is a generous scheme, but comes with a high cost to the State, which paid out €1,457 million in tax credits to Irish companies in 2022. R&D tax credits are self-assessed and have no official requirement for supporting documentation to be provided, leading to the potential for high rates of error and fraud. Thus, random queries to ensure claimants are accurately self-assessing are common and a necessary part of the scheme.

The Guidelines put out by Revenue are also inherently subjective. With such a wide range of companies with different projects, the Guidelines need to be applied to them all, which leaves room for vagueness and interpretation.

Furthermore, the changes to the scheme, from rate changes to slight amendments to the treatment of costs, mean that Revenue needs to validate that claimants have correctly assessed their credit value.

The possibility of error is high, from small miscalculations to large chunks of ineligible costs being included. Revenue is also keenly aware of the risk of fraud, as the scheme requires little detail to be provided. Therefore, the random audits of claims help to keep this risk low and ensure the rules and guidelines are being followed properly.

What steps do businesses need to take?

1. Review the query carefully

The first step is to review the query in detail to understand what specific information or clarification Revenue seeks fully. The query may be a standard list of questions, many of which may not be relevant. Nonetheless, businesses should still review each question in detail and consider what kind of evidence can be provided for each answer.

If you prepared your R&D tax claim with the guidance or support of a specialist advisor, the next few steps should be relatively pain-free, as your claim should have been prepared with all of these questions in mind. At Myriad, we handle any potential audits from Revenue without any risk to you.

At an early stage, you may also wish to confirm that you meet both the “Scientific Test” and the “Accounting Test” for claiming R&D tax credits.

2. Gather relevant documentation

After reviewing the letter from Revenue, all relevant documentation should be gathered that can support the claim. This may include:

• Technical reports describing the R&D activities undertaken.
• Project plans and timelines showing how the work progressed and what advancements were pursued.
• Financial records detailing the expenses associated with the R&D projects, including invoices, payroll records, and cost allocations.
• Internal communications or documentation (such as meeting minutes or research notes) that demonstrate the project milestones.

Documentation is critical in showing how the activities align with the eligibility criteria, and businesses should ensure that their records are thorough, accurate, and easily accessible.

This should also form part of your processes when physically completing the R&D work, in order to make the process of preparing a claim as easy as possible.

3. Draft a comprehensive response

Once all relevant documentation and expertise have been gathered, a comprehensive response to the R&D Aspect Query should be drafted. This should directly address each point raised and provide detailed explanations supported by evidence.

Not all questions will be relevant to your projects, but you should answer them all, nonetheless. You should be able to provide:

• A breakdown of your R&D expenditure
• Information on how you calculated the R&D tax credit figure
• The location of the R&D activity
• Information on staff working on the R&D project(s)
• Details of the R&D projects, including project names, project start and end dates, staff working on the projects and their qualifications, the field of science or technology…
• A description of the advances sought, uncertainties faced and the state of the art prior to your development

4. Submit the response on time

It is crucial to follow to the deadline provided by Revenue for submitting the response to the R&D Aspect Query. Missing the deadline can result in delays or, worse, the rejection of the claim.

If more time is needed to gather the necessary documentation or consult with experts, businesses may request an extension from Revenue. However, this should be done as early as possible, with a clear explanation of why additional time is required.

Responding to Revenue can be done by following the directions on the correspondence received. Usually, companies need to use Revenue’s online MyEnquiries service. You should also have the details of the Revenue official handling your case on the letter.

5. Maintain open communication with Revenue Ireland

Throughout the process, businesses should maintain open lines of communication with Revenue. If any part of the query is unclear, it is better to seek clarification early on rather than guessing or providing incomplete information. Similarly, if Revenue requests additional information after the initial response is submitted, businesses should respond promptly and thoroughly.

However, silence and delays are not out of the ordinary from Revenue and you may not receive confirmation that your response has been received or updates on the progress of your case. You may reach out to Revenue for a status update after several months of radio silence.

6. Learn from the experience

Once the query is resolved, businesses should review the feedback and take note of any areas where improvements can be made. This could include refining the way R&D projects are documented, ensuring that eligible costs are clearly tracked, or improving internal processes for preparing future tax credit claims.

For example, companies may find that implementing a timesheeting process or more comprehensive project planning documentation would improve the claim preparation process (as well as having other benefits for your business!). “Future-proofing” your documentation means that you’ll be able to recall the details of projects, even if the key staff have left or systems have changed. This is especially important when considering the fact that Revenue may open audits into claims from up to five years ago.

By learning from the experience, businesses can reduce the likelihood of receiving future queries and improve their overall approach to claiming R&D tax credits.

How does an R&D Aspect Query end?

Assuming that your response (or responses, if required) resolve any concerns at Revenue, you can expect a letter that explains the R&D Aspect Query has concluded.

Alternatively, if no agreement has been reached, the company may seek to find a mutually agreeable position with Revenue (possibly including a settlement), or to escalate the issue to be heard by the Tax Appeals Commission. The value of the credit and the time and resources required will likely inform the route taken.

If your claim is rejected and Revenue deems that the claim was particularly negligent or even fraudulent, penalties may be applied. Using a specialist R&D tax advisor is the safest way to avoid this outcome, as they come with the accounting expertise and detailed knowledge of the scheme’s details to avoid accidental error.

How can I ensure that my R&D tax claim is accurate the first time?

Receiving an R&D Aspect Query from Revenue is a relatively common part of the R&D tax credit claim process. While it may be initially daunting, following a structured response process, consulting with experts, and maintaining proper records can ensure compliance and maximise tax relief. Successfully navigating the query process also prepares companies for future R&D tax credit claims with greater confidence.

We highly recommend working with an R&D tax specialist, in collaboration with your accountant, to manage the submission process and ensure your R&D tax credit claim is accurate to maximise the available benefits. Myriad, with over 23 years of expertise in R&D tax claims across Ireland and the UK, offers professional support to enhance your claim’s success and minimise the risk of inquiries from Revenue.

For tailored advice or assistance with your R&D claim, contact us at +353 1 566 2001 or via our contact form.