Guiding clients through R&D tax eligibility criteria to find legitimate claims

Author: Jen Badger Published: 11^th July, 2023

When designing the WhisperClaims app, we found ourselves coming back time and again to a central question—what order should we ask the questions in, to ensure no-one’s time is wasted?

Why was this so important? Well, when working with your client to establish whether they have done any work that qualifies for R&D tax relief, asking the right questions in the right order is key to make sure that you don’t go up the blind alley of preparing claims that aren’t eligible for any one of a variety of reasons.

On that basis, here’s our guide to guiding your clients through the intricacies of HMRC’s eligibility criteria.

What should I think about first?

HMRC’s eligibility criteria can be divided into three rough groups:

Criteria that dictate whether the company can claim R&D tax relief at all;
Criteria that assess whether the projects are eligible for relief; and
Criteria that affect the amount of tax benefit due to the client i.e whether the claim is made through the SME scheme or RDEC.

When working with your client, it’s best to cover the criteria that dictate whether the company and its structure are even eligible to claim R&D tax relief first—you don’t want to have spent time and energy describing projects when the company isn’t able to make a claim in the first place.

Once you’ve worked this out, the next two sets can be done in either order, but we tend to recommend assessing the criteria linked to tax benefit next—again, you don’t want to spend time pulling a claim together only to find that the tax benefit is so low as to make the process economically unviable for you or your client.

Finally, having established that to company can claim relief and that the approximate tax benefit will make the claim economically viable, you can start the longer and somewhat painstaking task of establishing whether the projects are eligible for relief.

Basic criteria

The criteria that dictate whether your client’s company can claim R&D tax relief at all are fairly simple. They must:

Be subject to UK Corporation Tax
Not be in administration or undergoing liquidation
Have prepared their most recent accounts on a going concern basis

As you can see, these are very straightforward and should take almost no time to explain to your client. In fact, for most clients, you should be able to establish this before you even speak to them!

The WhisperClaims app asks you these questions upfront, and will not let you continue a claim if you answers them in such a way as to indicate that your client is ineligible.

SME and RDEC criteria

This next set of criteria is more complex, but assessing these is essential if you want to be sure that the claim will be financially viable for you and your client. To establish whether your client can claim as an SME you need to look at:

Staff numbers;
Shareholders and shareholdings;
Group status;
How much of the R&D was done under subcontract, and who it was done for; and
Whether any grants were received and used to fund the R&D.

This can be a lot more complex, and requires your client to know details of, for example, the shares held by and number of employees of each shareholder.

Happily, the WhisperClaims app helps here by responsively monitoring and calculating whether the company can claim as an SME, and making sure you know as soon as any thresholds are breached.

Technical criteria

The technical eligibility criteria are complex, but essentially boil down to needing to show HMRC, for each project, that:

The company sought to make an advance in an area of science or technology;
The company encountered technological uncertainties whilst making the advance; and
The company used competent professionals to carry out the work.

Guiding your client through this requires you to do just that—taking them through the criteria one at a time and building a case for why the claim is eligible.

Again, the WhisperClaims app is invaluable for this, taking you through each of the criteria one at a time and ensuring that all the right questions are asked every time.