R&D Tax Credits: HMRC customer service examined

Guest article written by Malcolm Henderson , Associate Director & Head of Compliance at Bonham & Brook

I worked at HMRC for 26 years, starting as a tax inspector in 1988 and leaving in March 2015 to join a specialist R&D advisory firm.?

This experience gives me a good perspective on R&D Tax Credits over the years, from both sides of the fence.

During my last eight and a half years with HMRC I served as an inspector in the R&D units in Southampton and Portsmouth.

Generally, HMRC was a good employer and I enjoyed my time there. The people I worked with consistently wanted to provide good customer service.

By November 2006, the R&D units had been established in seven different locations across the UK: Manchester, Maidstone, Cardiff, Leicester, Cambridge, Portsmouth, and Croydon.

These units provided services to companies that were conducting or planning to conduct R&D. Their role was to encourage the use of the relief while also ensuring that claims were compliant with the legislation. They did this through a combination of publicity, attending exhibitions, and direct contact with accountants and companies. Each unit had its own?effective, dedicated helpline.

HMRC's goal was to pay 95% of tax credit claims within 28 days. However, this target was often difficult to achieve due to the large number of claims still filed through paper returns and a lack of awareness of the specialist R&D units among other tax offices.

Until electronic return submission became more common, it was challenging to quickly process and track down paper claims. As a result, some claims took longer to reach the correct R&D unit and were harder to trace.

If the R&D units received a call from an accountant or company following up on a claim, it was generally given priority to provide effective customer service and meet the target of paying 95% of claims within 28 days. The units would do everything in their power to prioritise these claims.

How have things changed?

HMRC staff have not received a decent pay increase since 2010, which has affected morale.

Some staff have reported feeling that local management is supportive but that they are "lions led by donkeys" in terms of what is required from HMRC's upper management.

There have been conflicting instructions and a perception of "empire building" among top management. It is worth noting that there have been three prime ministers and multiple chancellors in this period.

Most R&D claims, including amended returns and original submissions, are now filed electronically. However, there have been instances where these claims have been lost, which can be frustrating for the delivery team. Credit control staff have had to be persistent in tracking down repayment progress from HMRC.

The commitment in Agent Update 100 about Corporation Tax repayments has helped, but there have still been extreme delays in processing R&D repayments. In some cases, claims filed as long ago as June 2021 are still unpaid.

When chasing these claims, R&D claimants may encounter recursive loops of "computer says no" with no clear guidance on the claim's progress or the reason for delay.

Delays in processing R&D claims may occur when a loss carry-back claim is involved, in addition to any CT and/or Tax Credit repayments. It can be difficult, if not impossible, to speak to the right person at HMRC about these circumstances. The customer service experience can be poor in comparison to earlier commitments.

However, this is not unique to HMRC and may be similar to the customer service experience at banks and other institutions.

It is common to experience long delays when contacting call centres and being placed on hold with "musac" playing in the background. Thankfully the "Covid-19" excuse is no longer being used, but institutions that provide information on where you are in line generally make the experience feel better.

HMRC R&D Customer Service Commitments

HMRC's customer service commitments are publicly available at CIRD 80525, via HMRC manuals, and were most recently updated on 20 December 2022.

For those of us who have worked in the R&D claims advisory sector for several years (over 16 years for me, both within and outside HMRC), a lot of the commitments there seem to have been left behind a long time ago.

For instance:

Getting It Right…

“We will provide support and advice to companies and agents who contact us with queries about the R&D tax relief regimes, so that they are able to make timely and accurate claims for relief”.?

How? Who to? As mentioned above, this was easier in earlier times.

Once Filed…

?“For the vast majority of claims, we will aim to either pay the payable tax credit or contact you regarding the claim within 40 days”.?

I suspect most of us would find that perfectly acceptable. Sadly, it is often not the case

Timely Enquiries…

“If we decide not to make a payment because we think the claim may be incorrect, then we will aim to open an enquiry within 60 days of receiving the claim”.

HMRC aims to open enquiries within 60 days of receiving a claim that is denied due to a potentially incorrect claim. However, there are many enquiries that are opened well beyond this timeline, which can be frustrating for companies that have already spent or earmarked the repayment, potentially by hiring additional staff or investing in machinery. It seems that these aims, or aspirations are more like guidelines rather than strict rules.

To be fair, it is reasonable for HMRC to redirect resources at certain times of the year, such as January, to handle PAYE codes and SA return deadlines.

The end of the fiscal year in December also tends to see a peak in statutory deadline R&D claims, which can increase HMRC's workload. Soft deadlines, such as the March year-end CT due in January, may also contribute to December peaks.

What about customer service relating to enquiries into R&D claims?

If you receive an information request from HMRC, you will typically have 30 days from the date on the letter to provide the requested information. However, postal delays may mean that it takes 10 days or more for your accountant or R&D advisor to see the letter.

HMRC Enquiry Officers generally do not refuse requests to extend the deadline by up to a month. Even with an extension, it is likely that HMRC will not issue an information notice with a potential penalty for another 30 days. It is important to send HMRC all the information that they reasonably request.

Sometimes it may seem that HMRC does not read the narrative and cost breakdown provided by your R&D provider, as they often ask questions that have already been addressed in the report.

Enquiries often take longer to answer because of templated queries such as "is there R&D/how much R&D," "acting as a subcontractor," and "subsidised R&D." The Litigation and Settlement Strategy does not seem to allow for HMRC officers to compromise or reach a pragmatic resolution.

After sending information to HMRC, you can expect a response within 2 months. If you have not received a response by that time, consider making a complaint to HMRC after 3 months.

As a last resort, you can also consider making a complaint to your MP, which may lead to a quicker resolution. It is hoped that improving customer service will make this a rarely needed recourse.

Best practice in obtaining the best customer service for yourself or your client

Most HMRC manuals can be found on the government website. If you experience an unreasonable delay, you can remind HMRC of their commitments in CIRD80525. However, it is important to note that some delays may be due to HMRC's program to review suspect claims.

If you experience delays in repayment, you can find information on how to file a complaint to HMRC on their website.

What can HMRC do to improve the current experience?

The transition to digital submission of all claims should help improve consistency and eliminate issues with lost claims due to IT failures.

However, there are still problems with the current system. It is difficult to speak with an R&D officer and contact details are often hard to obtain. The system in place is often unresponsive and does not provide a clear way to resolve issues when things do not go smoothly in the process. This can be frustrating for claimants and advisors alike.

To improve the claims process, it is important for HMRC to have the necessary funding and consistent direction from the government to provide strong leadership from head office. This would ensure that all divisions follow consistent and transparent claims processes.

As legislative discussions focus on increased demands for claimants, it is only fair for claimants to expect the same level of service from HMRC.

Previously with HMRC for 26 years, Malcolm Henderson is now Associate Director at Bonham & Brook where is role is to ensure compliance with HMRC's R&D Tax Relief Scheme.