What Triggers HMRC to Investigate R&D Claims in Football?

DBT & Partners are currently advising a number of clubs in the area of R&D Tax Fraud Investigations for Football Clubs.

If you are involved in the management of a UK football club that is currently in receipt of R&D tax relief from HMRC or have made a claim for R&D, we highly recommend that you stay abreast of the authority’s current R&D tax fraud crackdown – and ensure you avoid any activities that may lead to an investigation.

Scrutiny of R&D claims in football has recently intensified, with £90 million being recovered from clubs found to be at fault over the last year alone.

There is a far higher likelihood of your club’s R&D tax break being investigated and challenged at present if certain perceived “red flags” are seenby HMRC.

In this article, the R&D tax claim investigation experts at DBT & Partners provide a clear and practical overview of what triggers HMRC investigations, helping you to avoid the stress and complication of an investigation and a tax assessment with penalties applied.

Routine activities vs genuine innovation – where clubs go wrong

The point of R&D tax relief is to facilitate activities seeking advances in technology and science, which promise to “have physical consequences” and/or represent “an increase in overall knowledge”.

These advances should not be “easily worked out by a professional in the field”,and should require work to overcome technological or scientific uncertainty.

This means that any areas of focus that HMRC may perceive as routine rather than innovative may attract scrutiny. Some applications of this kind will be considered ineligible for relief and will therefore be rejected immediately, while others may be approved – only to become the subject of a football club HMRC investigation further down the line.

While matters such as training, nutrition, and analytics are ripe for the type of innovation and exploration that falls squarely into qualifying categories for an R&D tax break, they are also a football club’s bread and butter.

This means that, unless your application for relief explicitly states how the activities you have listed are innovative and unique – and clearly reflect the conditions explained above – HMRC may have cause to begin a tax investigation into your claim, particularly in relation to r&d claims in football.

Red flags HMRC looks for with R&D claims in football

The nature of activities listed in an R&D tax claim represents just one of the numerous potential signifiers of investigation.. Other areas of an application may also pique the interest of HMRC.

Use of templates

HMRC may begin to look into your club if it is believed to have used a template technical narrative – where the evidence or reasoning presented bears a dubiously strong resemblance to a previous successful application from another party. This is why it is important to tailor everything clearly and carefully to your club and its operations.

Weak evidence

Weak evidence is another red flag for HMRC. Vague statements often seem suspect, as they may suggest insufficient research, or that the claim has no specific purpose. For this reason, precision is key. Be sure to provide exact references regarding why the tax relief is required, where money will be spent and how your club will operate while pursuing planned R&D activities.

Over-claiming

Over-claiming can also arouse suspicions, as investigators may view it as an attempt to compensate for a genuine application application. Try to be self-aware of the level at which you are working and the scale of the results you expect to see.

Where possible, consult with a specialist/Competent Professionalin the field before you make your claim, as they may be able to provide guidance on what to expect. You can then use that information as part of a more realistic approach.

High or unusual pay

It’s important to note that it isn’t just the wording or presentation of a claim itself that has the potential to raise HMRC alarm bells as part of their crackdown against potential football clubs tax avoidance.

If the body considers that player wages – or anyone else employed by your club – are being apportioned that are significantly higher than average for the level at which you operate, that may trigger an investigation into your R&D claim.

The likelihood of HMRC investigations in R&D claims in football is currently high – and penalties for violations are severe. As mentioned in the introduction to this article, in the last year alone, £90 million has been recovered from clubs across the UK – with 12 football clubs, 16 agents and 90 players investigated.

What to do if HMRC opens an enquiry into your club’s R&D claim

If you have received correspondence from HMRC about a potential upcoming investigation, or if you are aware that your club’s finances are currently under scrutiny, it is vital that you move quickly. If you do not, you may face fines to the tune of 100% of any apparent understated tax liability, and interest may be charged on top of this.

First and foremost, we recommend that you get in touch with DBT & Partners for a confidential review and legal advice. From there, we can help you to review and strengthen the evidence you have provided for your claim.

If any mistakes have been made, we can help you to rectify them if there is still time to do so before the deadline – or, if there is not, we can assist you as you consider the use of HMRC’s voluntary R&D Disclosure Service or Contractual Disclosure Facility (CDF).

If you do not believe a disclosure is the correct route, we will help you to defend your claim, ensuring the best possible outcome for your club. Our specialist solicitors are highly experienced in working discreetly and with urgency when defending R&D claims in football and supporting clients through a range of business tax-related investigations.