Following the publication of HM Treasury’s R&D report, it’s clear that there will be an increased focus on making sure companies are not abusing the system. To quote, “…the government needs to address the root of the problem, designing out abuse and boundary pushing…”.
HMRC have only recently allocated additional resource to the R&D tax relief compliance process. However, the intention in the next stage of this strategy, is to further increase this resource, with the creation of a new cross-cutting team focussed on abuse of the relief.
Why this will affect all R&D claims
While the details of how the proposed changes are still to be ironed out (and HM Treasury has asked for further feedback on how these will be applied in practice), now more than ever it will be important for companies to clearly articulate their R&D.
We anticipate that HMRC will be seeking to get more comfort that the right people have made the right judgement on what has been included in each R&D claim - i.e. have the company’s competent professionals understood the definition of R&D and have they applied the correct boundaries in respect to the activities included in the claim?
The definition of R&D had been consistent since the beginning. Notwithstanding some adjustments and clarifications that have occurred through the years, it fundamentally still distils down to two, key points:
- R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology; and therefore
- The activities which directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are R&D.
Read the BEIS guidelines on the meaning of research and development for tax purposes
What is HMRC looking for?
In reviewing supporting documentation submitted with an R&D claim, HMRC will be seeking to clearly understand how and why the activities included in the claim fit the BEIS criteria and that the company has clearly identified, and articulated, the boundaries.
Sounds straight forward but, in practice, that means a lot of preparation needs to be put in to make things clear for HMRC. BDO has a strong working relationship with HMRC, and we have built up a very clear picture of what they are looking for in an R&D claim.
In our experience, the best way to prepare a claim is to involve our team of scientific, engineering and software experts to work with your technical team to get under the bonnet of the project and build a clear understanding of the R&D undertaken.
Working with your team allows us to:
- Develop clear technical descriptions of both the project and the work undertaken
- Describe clearly how the work meets the BEIS definition of R&D
- Set out in the required level of detail, how the costs claimed relate to the project, how they have been calculated and why they should qualify for relief
- Identify, collate and explain all the supporting documentation that HMRC will need to approve the tax relief claim.
This process takes time, but it is important to recognise that this ss an investment in ensuring that a claim is successful and in protecting your business’s tax profile with HMRC. After all, if you don’t make R&D claims that HMRC can deal with and approve easily, officers may start to consider what other tax paperwork could you be getting wrong.
For help and advice on R&D relief claims please contact Ece Akser or Carrie Rutland.
Read about BDO’s R&D services
Chartered Institute of Taxation’s guidance on choosing an R&D adviser
Read HM Treasury’s R&D report
Get in touch