In our last blog post (‘Avoiding the elephant traps when writing R&D reports‘), we talked about how to avoid some of the common pitfalls in applying for R&D tax relief. This time we wanted to focus on the positives – the things you can include that’ll help HMRC to understand what the claim is for and give them reassurance that it’s been prepared to a high standard by someone who really understands the scheme.
The first really helpful thing you can do is decide on the structure of your report. Even if you don’t provide reams of detail, it’s useful to show HMRC that you’ve examined a wide range of factors that can affect the claim. The ones we’d particularly recommend are:
Be up front about any grants that the company has received. Be sure to mention the type of the award (i.e. whether it is Notified State Aid, de minimis funding, or anything else). The reason to be clear is because grants have such a significant impact on the claim, so HMRC will be keen to see that they’ve been treated correctly.
Remember, any project that’s received State Aid will be bumped into the RDEC scheme for Large Companies, meaning that subcontractor costs for Limited companies must be excluded. If the grant was de minimis State Aid (or not State Aid at all!), then the grant-funded part of the project can be claimed through RDEC and the remainder routed through the SME scheme as usual.
Boundaries of R&D
In HMRC’s playbook, R&D doesn’t actually start until you’ve set out to make something ‘better’, encountered at least one significant technical challenge, and, crucially, tried to use all the standard or existing techniques that are usually applied in that situation. If all of those don’t work, then the R&D clock starts ticking while you try to develop a new solution that does work. Getting this boundary condition right shows that you’re an R&D ninja. Getting it wrong can be an instant red flag and land you with a time-consuming enquiry.
Level of detail
Some advisors seem to think that the longer the R&D report, the stronger the claim. Not true. While it’s always important to provide a level of detail appropriate to the size of the claim, it’s usually better to provide a small amount of really concise and relevant information than a War & Peace effort where much of the information is extraneous. Like you, HMRC are pushed for time and you can help make their lives easier (and happier!) by providing only what they need to make an informed decision on your claim. Be honest about who you’re writing for – HMRC, or your client (to justify your fees..?).
Area of advance
When it comes to the section on the technical advance, it often helps to include the area of science or technology in which the advance is being claimed. Why? Two reasons – firstly, because it helps HMRC get comfortable that the advance isn’t a commercial one (for example, using existing technologies to produce something that is commercially new rather than technologically new). Secondly, being clear about the area of advance makes it easy for them to check that you or your client have Competent Professionals in that particular area.
Speaking of which, it’s good practice to consider whether the people leading the R&D projects are credible ‘Competent Professionals’. This is usually the case if they have industry experience and qualifications in that particular field. If they don’t (as is the case in many IT projects, in which non-IT experts are asked to draw up a specification for a new system but aren’t directly involved in the technical details of its implementation) then perhaps draw breath to consider whether the company should even be claiming for that work at all.
As you can probably get from the above, there’s lots to consider when making a claim for R&D tax relief – and this is only scratching the surface. The good news is that WhisperClaims provides advisors (typically accountants and business consultants) with a framework for systematically and methodically working through all of these points – and generating HMRC-compliant reports at the touch of a button. For those who like to tinker, our reports are also easy to edit and customise, allowing you to focus your efforts on the fancy icing rather than on baking the cake in the first place.
With a growing number of accountancy firms starting to use technology to make their R&D processes more efficient, the future looks like one where advisors and their clients work together closely, supported by technology, to produce stronger results with less effort and cost. And that’s a future that we’re proud to be part of.
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Our fully automated, scalable and white-labelled software is capable of producing all the documentation needed to support an R&D claim within an hour. It is designed for business advisors of all kinds, including Accountants and R&D Tax Consultants.