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5 key ingredients for a successful R&D claim
2 May 2024
Reducing Tax
For a number of years now HMRC have been actively operating a compliance campaign aimed at tightening up access to R&D claims, in a bid to tackle abuse of the generous tax relief.
This was mainly as a result of a number of ‘boutique’ firms with aggressive approaches and high fees.
Enquiries into R&D Claims
In recent months we’ve seen HMRC issue enquiries into R&D claims left, right and centre.
But what’s the common denominator of all the companies targeted?
…
There doesn’t seem to be any rhyme or reason to which claims HMRC decide to investigate!
Simply making a claim puts you at risk of enquiry, which is why a robust claim must be established, capable of withstanding HMRC scrutiny.
Ingredients to an R&D Claim
Making an R&D claim is like baking a cake, and HMRC is our very own Mary Berry giving us the recipe.
You wouldn’t attempt to make a cake knowing you had no flour in the cupboard.
You wouldn’t expect your cake to be a successful bake if you knew you didn’t put any eggs in it.
HMRC have given us the recipe for a successful R&D claim – we just need to be sure we have all the correct ingredients!
Ingredient # 1 – You must be a limited company.
A basic ingredient to begin with – R&D tax relief is a corporation tax relief, which means it’s only available to limited companies making a claim.
Individuals operating as sole traders or in a partnership will not be eligible.
Ingredient # 2 – You must have a defined project.
Did you come across a problem or gap in industry knowledge, and set aside time to work to solve it?
HMRC love to see that you have embarked on a ‘project’ to overcome a problem, with a defined start and end date and a defined goal.
If you just happened to stumble upon a solution as a part of your day-to-day, without any real purposeful activity, HMRC are unlikely to consider a claim.
Ingredient # 3 – You must be trying to advance the industry in the face of a scientific or technological uncertainty.
Now we’re getting to the difficult ingredients – the ones you don’t normally have in your cupboard.
Are you looking to do something that others in the industry would see as an advancement or that would give you a competitive edge?
Was there a knowledge gap that needed to be bridged and the solution wasn’t obvious?
Your project must be working on something that could not only advance the knowledge of your company, but the industry as a whole.
There should be uncertainties faced, you may not even know if what you’re trying to do is possible or you may even fail.
Examples of uncertainties faced, and how both you and others in the industry have attempted to solve it always go down well.
Ingredient # 4 – The answer mustn’t be readily ascertainable.
Why wouldn’t it be easy for another suitably experienced person in your field to solve what you’re trying to do?
Have others tried and failed to achieve the desired outcome?
You have to show HMRC that you’re attempting to make a real advancement in the industry, and that someone else with the relevant knowledge and experience couldn’t simply do some googling and achieve the same easily.
Ingredient # 5 – You’re a ‘competent professional’.
By this, HMRC mean that you’re highly qualified and experienced in your field.
It goes hand in hand with ingredient # 4 – if you’re not highly knowledgeable in the field you’re attempting to advance, how could you convince HMRC that someone who is couldn’t easily achieve what you’re attempting.
HMRC love qualifications, industry publications, awards, or other recognition for contribution to the field.
. . . and voila! A tasty R&D cake!
Being able to communicate the above attributes to HMRC is paramount to a robust R&D claim.
Keeping suitable records to prove the process is also important.
For example, time sheets, project management software records, links to industry forum discussions, invoices or scientific journals showing the knowledge gap.
If you’ve got a project in mind and a plan of action, please get in touch to discuss if you could be eligible for R&D Tax Relief.
In light of HMRC scrutiny lately you may be thinking it’s more hassle and effort than its worth.
R&D Tax Relief could mean that you receive a substantial repayable cash credit.
If, for example, the potential claim is worth £50k of tax relief – how much effort or manpower would you put into earning £50k of sales in your business?
With this mindset and a robust enough project, I think you’ll find R&D to be very fruitful labour.
If you’re interested in discussing R&D further, please contact Christie Inns via email or on 01634 731390.
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If you would like to find out more about some of our services that might help you please take a look at our related pages:
Blogs related to R&D Claims
Take a look at our other blogs on the topic of R&D Claims
R&D claims – Free money or is there a sting in the tail?
The content in this blog is correct as at 1st May 2024. See terms and conditions.
