A look at the HMRC Fraud Investigation Service 

HMRC Fraud Investigation Service – What is it, and what can you expect from an investigation into your claim? 

HMRC Fraud Investigation Service (FIS) is a dedicated team within HMRC that scrutinises claims for potential fraud.

If you receive what looks like a rather sinister letter from the HMRC Fraud Investigation Service then the accusation is that HMRC thinks you are committing fraud and could be claiming money you’re not entitled to. While no criminal investigation is necessarily underway at that point, the service is conducting a thorough investigation, much like a rigorous Compliance Check, to verify that all R&D claims are both legitimate and compliant with current regulations.

“The claim triggered an alert on our systems and caused HMRC to suspect that you have fraudulently claimed money to which you are not entitled.” 

Later in the opening letter FIS will go on to say: 

“At this time HMRC has not opened a criminal investigation into this suspected fraud.” 

Which, while on many levels is not that reassuring… it just reflects the level of do-do you ‘could’ be in and the potential seriousness of the situation, but that option remains open with the next line: 

“However, you should be aware that HMRC reserves the right to open a criminal investigation into any suspected fraud committed against the R&D scheme.” 

Now at this stage you’re probably in a mild panic. But, if your claim is genuine and you’ve nothing to hide, the best thing to do is to engage fully and provide all the requested information within the given timeframe. As mentioned, in many ways, this is just a more intense version of a Compliance Check. FIS simply wants to make sure that your R&D is genuine, the costs have been incurred, and you’re claiming no more than you’re entitled to.  

The trigger could be any number of things, but a common red flag we’ve seen includes foreign directors subcontracting development abroad, which is a well-known fraud risk.

Sometimes, we have no idea why a company gets a FIS letter, but regardless of the cause, be sure to engage and provide what they want. A recent client we engaged with was advised by another provider to ignore the letter and it will go away. Spoiler alert: It won’t!

The outcomes of such an investigation if you’ve nothing to hide seems to one of two outcomes: 

1) That FIS accept that no fraud has taken place and hands the claim back to HMRC for a compliance check to be continued, which will focus on reviewing the details of the claim. 

2) That FIS withdraw the claim from your accounts using the powers held under the provisions of Schedule 18 Paragraph 16 of the Finance Act 1998, which grants HMRC the power to amend a company tax return.

Regardless of the outcome, you won’t be told what caused the investigation, nor will you be told why FIS is no longer investigating the claim. It will simply be closed. 

If the first outcome applies, then the company must continue to engage with HMRC, but it is no longer a potential criminal investigation, just a routine Compliance Check. 

If the second outcome occurs, then according to the letter you have no right of appeal to FIS. However, if you’re still within the two-year window, you can resubmit your claim to HMRC. Then the expected outcome after resubmission would be a Compliance Check.  

Do you have an investigation into your claim?

Facing an investigation by the HMRC Fraud Investigation Service can be daunting, but the key is to stay engaged and provide all necessary information.  Navigating the complexities can be challenging, and mistakes can be costly. If your business is under investigation, our R&D Tax experts can guide you through the process, help you respond effectively, and ensure your claim is handled correctly. Get in touch to see how we can help.