Companies eligible for R&D tax relief will continue to face scrutiny in their claims unless they ensure that they have obtained appropriate advice from an advisor on the mechanics of the scheme and application to their own business.
There has been a significant rise in HMRC enquiries into companies who have made R&D claims, which means that all companies who have made a claim or plan on making one need to be prepared to answer questions on their claim – should they be raised by HMRC. Enquiries can be into a claim that has been submitted for the first time or indeed subsequent claims that have been made. There is no formal approval process by HMRC so where a company has received a repayment for a previous year’s R & D claim, it does not necessarily equate to approval. It may just mean that HMRC have not reviewed the claim in any detail at that stage.
We have outlined some points to consider, to help increase the likelihood of your claims being processed without HMRC raising a formal enquiry. However, the advice remains to seek expertise in this specialist area.
In order to claim under the R&D scheme, your company must have undertaken a qualifying R&D project(s). Determining whether the project(s) are qualifying is not always a straightforward process due to the nature of some the activities undertaken.
It is always worth seeking advice from professionals who specialise in submitting R&D claims – we provide a free R&D Assessment for such matters. It is also important that companies familiarise themselves with HMRC’s guidance on R&D qualifying activities which are outlined in the BEIS guidelines.
It is crucial that companies submit a report alongside their R&D claim to provide evidence of their eligibility within the scheme. This report should provide details of the R & D qualifying projects and how the activities fall within the BEIS guidelines. Details should be provided of the advance sought, what scientific or technological advancement(s) were pursued and how the company overcame these uncertainties. Within the report you should also explain any known industry methods or processes and why these could not be applied.
Companies will often run into challenges when submitting an R&D claim, particularly if they are not aware of the BEIS guidelines and relevant requirements. Failure to provide the required information will likely lead to an increased chance in claims being rejected even if the company is certain that it qualifies under the regime. Common areas of errors include failure to show how the company falls within the eligible criteria (including costs that do not fall into any of the qualifying categories of expenditure) and failing to consider the effect of state aid and the size of the company.
We have a specialist team of R& D advisors who have an in -depth knowledge of the R& D scheme. On average, our enquiry rate by HMRC is less than 1%, meaning over 99% of claims are approved on submission.
From our knowledge, many businesses are failing to provide accurate details of the technological advancements in a project and how they managed to overcome any technological uncertainties. Creating a compelling technical narrative can help overcome these challenges. By ensuring a sufficient understanding of your business activities and costs, we can work with you to identify qualifying activity and expenditure to maximise the tax benefits available. We recommend having an efficient record-keeping process throughout the R&D claims process to support your claims, should HMRC wish to raise any queries
Partner - Corporate and R&D Tax
FOR GENERAL INFORMATION ONLY. The information provided in this article is for general information only and does not constitute any specific advice or guidance. Whilst every care has been taken in the preparation of this article, it may contain errors and/or omissions. Always seek professional advice before taking any action. Last updated November 2021.