HMRC Guidance for Compliance 3 (GfC3)

Updated advice from HMRC on how to prepare R&D tax relief claims

On the 31st October 2023HMRC published Guidance for Compliance 3 (GfC3) – Help to see if your work qualifies as Research and Development for tax purposes. This is part of a series of guidance documents produced to help companies reduce the risk of tax non-compliance and the likelihood of compliance checks – both noble aims that we whole-heartedly support!

The GfC3 covers four major topics – HMRC’s expectations of claimants, the importance of competent professionals, identifying qualifying R&D activities and the recommended approach to record keeping. Each of these sections gives good advice about producing compliant claims, and aligns with the feedback the sector has seen from HMRC during enquiries over the past year. 

Expectations of claimants

The section lays out the thirteen-step process HMRC expects all claimants, and their advisors, to undertake when assessing the eligibility of projects. None of this should be news to experienced advisors, but it’s helpful to see it laid out in this way. In addition, HMRC emphasises that keeping a record of having gone through these steps reduces the risk from incorrect claims, and, one assumes, makes any enquiry much easier to address. 

Importance of a competent professional

One of the trends observed in HMRC’s enquiries over the past year or so has been an increased emphasis on making sure that the opinion of a competent has been sought during the process of preparing a claim for R&D tax relief. This section of the GfC3 lays out in more detail than previously provided the meaning of competent professional, their expected experience and qualifications, and what is expected from the opinion of the competent professional. Some useful examples are also provided. Again, much of this section will be very familiar to experienced advisors, but it is still helpful to have HMRC’s expectations clearly laid out, as well as examples that can be used to explain the definitions to prospective claimants. 

How to identify qualifying R&D activities

As before, this section of the GfC3 shouldn’t contain anything new – it details HMRC’s criteria for eligible work, covering the need for a project, fields of science and technology. Technical advances, uncertainty, and qualifying activities. It contains some very useful examples, and a helpful description of the difference between making a commercial advance through the use of technology and making an advance in science or technology. The emphasis in this section is on the more peripheral aspects of technical work, including the definition of a project and how to assess the boundaries of an eligible project, suggesting that these are areas in which HMRC often see errors. 

Recommended approach to claims and record keeping

The section represents the biggest departure from previously published HMRC advice – it has never mandated any specific record-keeping about R&D, other than to keep records as you would for any other tax-related matter. This has changed, with a fairly proscriptive description of the written records and notes that should be made during the project and a list of the types of information HMRC might request in the event of an enquiry. However, none of this appears onerous, and lines up with the types of records most claimant companies would keep anyway. It simply emphasises the need for more focussed record keeping around specific R&D projects. 

GfC3 and WhisperClaims

Overall, this clarification and guidance is very welcome, especially given the current backdrop of increased enquiries and high rate of change in the R&D tax relief space.

WhisperClaims customers don’t just have access to our technology to help them to deliver claims more effectively, but also have open access to our Advice Line – this gives direct access to advice from our team through live chat, telephone or email channels.  So if you are struggling with questions around specific areas of eligibility or you are unsure whether your claim is valid, reach out to support – we’re here to help.