The rules and regulations regarding an R&D claim are lengthy and complex and the bar is currently set higher than ever for claims to qualify. It’s widely known that HMRC have significantly stepped up investigations and since 8 August additional information has been required on all claim forms.
It’s more important than ever to ensure the accuracy of your R&D claims and here are some common pitfalls to be avoided.
Insufficient or no documentary evidence to support a claim
Even more so since 8 August 2023, a wide range of information relating to the R&D projects, the costs involved, and the workers involved must be presented, which must be accurate and tied to the accounts. HMRC is asking for a further split of costs by project, including the qualifying indirect and direct costs attributable to each eligible project.
This additional information will be required to submit all R&D claims and must provide sufficient evidence to HMRC that the R&D projects claimed are eligible under the scheme.
You cannot rely on an NDA or ‘trade secret’ as an excuse for insufficient evidence and failure to submit the additional information will result in the R&D claim being removed from the tax return.
Assumption that all technical projects are eligible
Whilst there is a requirement that R&D projects are undertaken in an area of science or technology, this does not mean that all projects that involve technology are eligible for R&D tax relief.
For example, the installation and implementation of a new security system might represent a technical improvement for the company itself, but this isn’t enough for the project to qualify for relief.
An advance in science or technology means an advance in overall knowledge or capability in a field of science or technology, not a company’s own state of knowledge or capability alone.
Every project needs to be assessed to identify whether any advance in technology was sought, and what technical uncertainties were encountered during the project before it is included in a claim.
Not understanding which parts of a project can be included in a claim
The entire project costs cannot be included in a claim, only the R&D elements.
The guidance is very clear that the only costs that can be claimed are those associated with resolving the technical uncertainties. This means that you can’t claim for any project costs until the technical uncertainties have been identified, or any costs incurred after the uncertainties have been resolved.
Failure to Keep Accurate Records
Accurate documentation is essential when applying for R&D tax relief and many businesses make the mistake of not keeping detailed enough and accurate records of their R&D projects, expenditures, and outcomes.
HMRC requires very clear evidence of the R&D work in order for your claim to be deemed successful. This includes project plans, research notes, trial results, and financial records. Failure to maintain comprehensive documentation can result in delays, further questions, or even outright rejection of the claim. Having a diligent record-keeping system in place from the outset will help ensure that you have all the information that you need throughout the course of submitting a claim.
Not seeking the correct professional advice
Some businesses make the mistake of not seeking professional assistance which is probably the most important pitfall to avoid. An expert perspective from an R&D tax advisor can help you accurately assess your eligibility, prepare your claims, and navigate the submission process, increasing the likelihood of a successful application.
It’s important though to seek the right advisor and not a ‘Claims Company’ who profess to be R&D tax experts. It has been well publicised over the past 12 months or so that not all of these companies have been submitting genuine R&D claims on behalf of their clients. Many have been submitting erroneous claims, often for greatly inflated amounts, either because they don’t have the expertise to deal with claims or in some cases, they have submitted fraudulent or false claims so that they can earn commission!
Get in touch
Cowgills are experts in R&D claims, with over 15 years’ experience in reviewing, managing, and submitting successful claims for all sizes of organisations. If you have any questions on the above or making a claim, get in touch.
Disclaimer
The information was correct at time of publishing but may now be out of date.
