HMRC Enquiry Analysis — Bracken Systems Ltd
Prepared for: the directors, Bracken Systems Ltd · Case: V2-000-SPECIMEN · Date: 8 July 2026
Enquiry: HMRC letter dated 28 May 2026 into the CT return for the year ended 30 September 2024 · R&D payable credit claimed: £34,670 (unpaid — withheld pending this enquiry)
Documents relied on: the enquiry letter incl. schedule of six questions; Additional Information Form as submitted; CT600 and computations; the claim report prepared by your former adviser
1. Position summary
The notice is valid — opened 23 days inside the statutory window, so the enquiry must be answered on its merits. HMRC's six questions concentrate on whether your two projects qualify at all and on the subcontractor costs. On your documents as they stand, Project 1 (the adaptive routing engine) is defensible — a named competent professional, a commit history, and recorded failed approaches are exactly the evidence tribunals reward. Project 2 (the customer portal rebuild) is not: nothing in the AIF or the adviser's report identifies a technological uncertainty, and defending it risks the credibility of Project 1. The recommended posture: request an extension today, defend Project 1 in full, concede Project 2 as a careless — never deliberate — inaccuracy, and ask for penalty suspension. Done cleanly, the realistic cost is roughly £9,700 of clawback plus a suspended penalty in the £1,500–£2,900 range, against £24,900 of credit defended.
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2. Validity check
Your return was delivered 20 June 2025. Bracken is not a member of a group, so HMRC's window to open an enquiry ran 12 months from delivery — to 20 June 2026 (FA 1998, Sch 18, para 24). The notice is dated 28 May 2026: valid, with 23 days to spare. (Had you filed by the statutory deadline of 30 September 2025 instead of early, the window would have run to that anniversary — early filing shortens HMRC's window, and it nearly mattered here.)
3. What is at stake
Swipe the table sideways for all columns →
| Item | Amount |
|---|---|
| Qualifying expenditure claimed (old SME scheme — period began 1 Oct 2023, before the merged scheme) | £186,400 |
| — staffing costs | £142,100 |
| — subcontractors (after the 65% restriction) | £28,300 |
| — software and cloud | £16,000 |
| Payable credit claimed (10% of surrenderable loss; PAYE cap not engaged — headroom comfortable) | £34,670 |
| Credit attributable to Project 2 (≈28% of QE) | (£9,708) |
| Penalty range if Project 2 conceded as careless, prompted (15–30% of the lost credit) | (£1,456)–(£2,912) |
| Penalty range if HMRC established deliberate (35–70%) — see §5 for why the facts resist this | (£3,398)–(£6,796) |
Cash flow: the credit is unpaid and HMRC may lawfully withhold it while the enquiry is open (FA 2024). Every week of delay is £34,670 not in the company — which argues for the clean-concession strategy over a two-front defence.
4. The letter, decoded
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| Q | HMRC asks | Really asking | Exposure |
|---|---|---|---|
| 1 | "Describe the advance in science or technology sought" | An advance in the field's knowledge, or just in yours? (DSIT Guidelines: field-level advance) | LOW P1 · HIGH P2 |
| 2 | "Explain the scientific or technological uncertainties" | Feasibility-or-how uncertainty a competent professional could not readily resolve — commercial difficulty does not count | LOW P1 · HIGH P2 |
| 3 | "Identify the competent professional(s) and their relevant experience" | The witness question — the ground on which these cases are actually decided | LOW — named, employed, available |
| 4 | "Provide evidence of how the work was carried out" | Contemporaneous records vs retrospective narrative | LOW P1 (repo history) · HIGH P2 (none offered) |
| 5 | "Breakdown and evidence of staffing cost apportionments" | Timesheets or defensible allocation basis; reconciliation to payroll | MEDIUM — allocations exist, basis needs documenting |
| 6 | "Copies of subcontractor agreements and invoices; confirm the 65% restriction" | Whether subcontracted work was actually R&D, and arithmetic | MEDIUM — invoices exist; one contract informal |
5. Project-by-project
Project 1 — adaptive routing engine for intermittent industrial networks: DEFEND
Your CTO (12 years in embedded networking, named in the AIF narrative) can state the baseline — existing protocol stacks assume connectivity patterns your customers' environments break — and the uncertainty: whether sub-second failover was achievable at all within the hardware constraints, which two documented, abandoned architectures show was not readily deducible. The repository history and design notes are contemporaneous. This is the evidence pattern that succeeded in Get Onbord (2024) and whose absence lost Flame Tree (2024) and Beer Express (2026, over £490,000 disallowed for want of the technical witness). The full pack rebuilds the narrative to the statutory anatomy from the CTO's questionnaire answers — restructuring your evidence, never inventing it.
Project 2 — customer portal rebuild: CONCEDE, ON THE RIGHT BASIS
The AIF describes framework selection, UI redesign and API integration — competent, commercial, and routine in the statutory sense: no technological uncertainty is identified because none appears to have existed. Defending it invites HMRC to read Project 1 through the same sceptical lens. The concession must be characterised as careless (you relied on an adviser who oversold the boundary — the file supports this), not deliberate: the behaviour label drives the penalty table, HMRC must establish it, and the distinction is worth thousands. We propose suspension conditions (Sch 24 para 14) — a documented claim-review process — under which a careless penalty can be suspended and then cancelled.
6. Strategy and sequence
- Today: send the extension request (draft below) — the 30-day figure is HMRC's administrative guideline (EM1580), not statute; a reasoned extension is commonly granted — eight weeks is an ask, not an entitlement, and asking cannot count against you.
- This week: CTO completes the competent-professional questionnaire; assemble the repository extracts, the two abandoned-architecture notes, payroll reconciliation and subcontractor invoices. Do not tidy or rewrite anything — contemporaneous beats polished.
- The response (full pack): defend P1 with the rebuilt narrative and cost reconciliation; concede P2 with the careless characterisation, the corrected computation, and the suspension proposal — one letter, for your signature.
- If positions harden: closure notice → statutory review (TMA 1970 ss.49A–49I) → ADR (~4 months, works for R&D disputes) → tribunal. Most enquiries of this shape settle by correspondence at step 3.
Extension request, for your signature — Dear [caseworker], thank you for your letter of 28 May 2026 (ref —). The company intends to respond fully. To provide the technical evidence and cost reconciliations properly, including input from the engineer who led the work, we request an extension to [date, +8 weeks]. We note the response period stated is administrative and trust this reasoned request presents no difficulty. [Director]
7. What the full pack contains
On the £300 balance: the Project 1 technical narrative rebuilt to the statutory anatomy from your CTO's own account; the full cost reconciliation with workings; the consistency audit against the AIF and CT600 (two divergences already spotted and addressed head-on); the complete response letter for your signature; and the penalty-position annex. We draft; you sign; nothing goes to HMRC from us.
What we did: validity check against Sch 18 para 24 (delivery-date basis); decode of the schedule of questions against the DSIT Guidelines (s.1006 ITA 2007, as amended 7 Mar 2023) and CIRD; penalty modelling under Sch 24 FA 2007 with prompted-disclosure floors; strategy per the tribunal pattern (Flame Tree, Get Onbord, Tills Plus, Beer Express). What to verify: the delivery date (client's filing record), the P2 QE share (computations p.—), the PAYE-cap headroom (payroll summary). Everything asserted about the projects comes from the client's AIF, adviser report and the CTO's account — nothing is ours but the analysis.
Sources
Verified against primary sources as at 8 July 2026: FA 1998 Sch 18 paras 24, 32; FA 2007 Sch 24 paras 4, 9–10, 14; FA 2008 Sch 36; TMA 1970 ss.49A–49I; FA 2024 (credit withholding); SI 2023/813 Sch 2; DSIT Guidelines on the meaning of R&D; HMRC manuals EM1580, CIRD80520/80525; cases as cited.
In a real engagement this analysis arrives as a PDF within 48 hours of your deposit and documents. The £300 balance is due only on delivery of the full pack — and if the analysis had concluded your claim was not defensible at all, it would say so and the deposit would be the entire fee.
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