Craig Simpson, tax partner at Bates Weston issues a warning not to cut corners on R&D claims
Research and Development (R&D) tax credits can provide extremely favourable tax reliefs for companies who innovate. It is not just relevant to technology companies. Qualifying R&D can be found in many different industries. It is possible to make retrospective claims for open corporation tax years and recover tax previously paid. Establishing qualifying projects, assisting in identifying eligible costs, preparing an R&D report for submission to HMRC and liaising with HMRC to process tax repayments all require rigorous attention to detail.
“The recent case of AHK Recruitment v HMRC is a timely reminder on the level of information HMRC expect to see for a claim to be valid. The case highlighted that it is not enough simply to put a narrative in the computation with a brief outline of the project. The onus is on the client to prove they have a valid R&D claim. To do so there needs to be a proper assessment of the project to uncover the technological or scientific aims and uncertainties, and how they were resolved.
We have seen the rise of many firms claiming to specialise in R&D tax credits some of which don’t submit reports to HMRC, some even not allowing the client themselves to see the report.
Given that R&D claims are often substantial it is vital a report is submitted to HMRC alongside the computations to demonstrate a valid claim. Capturing all the evidence and information is important as by the time an HMRC enquiry is opened the detail of the project may have been forgotten or the individuals involved may have left the firm.”
“We see a wide variety of quality on claims in this area, and given that the pressure to raise tax revenues will only increase, it is not enough to assume HMRC will not look at your claim. It is relatively easy for HMRC to focus their attention on poorly evidenced R&D claims. Our advice is not to cut corners, look at your claims properly and in detail and submit a robust claim”.
Disclaimer: The information contained in this article is generic in nature. You should take no action based upon it without consulting ourselves or an alternative professional advisor. All information correct at time of publication: 13 July 2020