From time to time, before switching to WhisperClaims, Accountants often approach us looking for a second opinion on R&D claims reports prepared either by themselves or another provider. It’s a good way for them to get a second opinion, which helps to mitigate against HMRC enquiries, and, it keeps us current on how the guidance is being interpreted by the industry. All very positive!
Every now and again we do come across a report that makes us wince! There are some common mistakes that we thought we’d pull together and share with you – these are major misinterpretations of the guidelines that we recommend you avoid!
1. Confusing commercial details with technical and scientific details.
A report we recently reviewed had a whole section dedicated to establishing the technical baseline for the client’s projects, which is exactly what HMRC like to see. However, this section was full of commercial details about the company and the industry, and actually undermined the claim from the beginning by establishing that the company did standard work using off-the-shelf components, which is completely ineligible!
2. Assuming that trial and error is eligible.
Reports that use the phrase ‘trial and error’ multiple times to describe the work that the company does to establish which combination of components perform best for each application, can be a problem. Trial and error is almost always ineligible. To quote CIRD81900, ‘improvements, optimisations and fine-tuning which do not materially affect the underlying science or technology do not constitute work to resolve scientific or technological uncertainty’.
3. Claiming for software installation and optimisation.
This point is more common than you might imagine – an example being a company that has decided to upgrade their CRM system and claimed work as R&D. A report we recently reviewed detailed the analysis they did of available systems before making the choice to go with an off the shelf system. If they’d done this work and then discovered that there was no available system that was technically capable of doing what they needed, they might have had a claim, but installing and optimising a standard system is not an advance in worldwide science or technology. Again, CIRD81900 states, ‘A process, material, device, product or service will not be appreciably improved if it simply brings a company into line with overall knowledge or capability in science or technology, even though it may be completely new to the company or the company’s trade.’
4. Confusing commercial and technological uncertainties
Reports that list a number of ‘technical uncertainties’ including uncertainty regarding whether a project could be completed within the allocated budget. This is absolutely not a technical uncertainty by HMRC’s definition – ‘Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field.’
5. Using ‘Red Flag’ words
Red flag words used throughout a report, including ‘fine-tuning’, ‘trial and error’, ‘optimisation’ and ‘bespoke’. The quote in section two (above) explains why the first three of these should be avoided. ‘Bespoke’ is one we’ve learned is a red flag from our experience of claims and conversations with HMRC – it implies that the work done is specific to the company and doesn’t constitute a worldwide advance in science and technology.
The key thing to remember is that these issues are easily avoidable if you take the time to get to know HMRC’s guidelines, and make sure that your reports are produced by either people or systems that know what they’re doing. Here at WhisperClaims we put a lot of time and effort into making sure that our reports are robust, accurate and compliant with HMRC’s guidelines!
If you’re not already a WhisperClaims subscriber and want to explore our system or get a second opinion on how you are currently preparing claims, please feel free to get in touch. We’re happy to help!