Research and Development Relief – More Trial than Success
Businesses are constantly trying to become more efficient and effective at what they do. This may be for financial reasons, especially in today’s climate, but for many other reasons too such as reducing waste, being more energy efficient and making better use of technology. However, trying achieve this can be costly, both in terms of money and time.
To encourage development and forward thinking, limited companies across a range of industries are encouraged to innovate through the availability of tax credits and tax relief against the costs incurred. You may often see these referred to as Research and Development (R&D)credits.
However, due to an increase in ‘irregular claims’ and to prevent abuse of for R&D tax credit payments, HMRC is enhancing its extensive compliance checks. These additional checks will mean HMRC’s standard processing times will increase. For the majority of claims, HMRC aims to either pay the payable tax credit or contact the claimant regarding the claim within 40 days. HMRC’s aim is to return to its standard 28-day processing times as soon possible, but it hasn’t indicated a timescale for this.
To ensure any claim is processed as quickly as possible, and isn’t placed on HMRC’s ‘possible abuse’ pile R&D activities must meet the following criteria:
- they should be designed to ‘make an advance in science or technology across the field/industry as a whole, not just to your individual business
- the activities may relate to an existing business, or area of it, or a completely new trade which you may start as a result of your R&D work
- the results of the project could not be easily worked out by a professional in the field
- the work could create a new technique or product, or improve an existing one.
Proof of work more important than results
The latest announcement by HMRC confirms our experience that they are tightening qualifying criteria all the time. As a result of this and their increased scrutiny of claims the success rate of claims is reducing.
But it is important to point out that the actual result of the R&D project doesn’t have to be a success to qualify. What you do need to do is be able to prove that you have undertaken the work to create a unique, real advance in your industry or field. HMRC have dismissed cases where the claimant could not produce evidence that any actual work had been done.
That being said, providing the necessary proof of work combined with the increased scrutiny from HMRC can make a successful R&D tax credit claim more time consuming and difficult than it is sometimes portrayed to be.
Be aware that companies may ‘cold call’ your business to ask if you would like assistance in making a claim. You should weigh up whether these companies know your business as well and as in-depth as required. Ask yourself if they will know your business as well as your usual financial adviser. They may also encourage you to make larger claims than we would recommend.
If HMRC do have queries it can take some time to review and process your claim. You should be sure that any organisation who offers assistance will also be able to follow up any queries or disputes. If the company is no longer able, or available, to assist, it could result in significant time and money to resolve matters with HMRC’s investigation.
We have assisted several our clients with R&D credit opportunities. If you think that your company could meet the above criteria for a claim, please do get in touch and we would be happy to discuss your individual circumstances in more detail.