How to prepare legitimate claims that will give your clients—and HMRC—comfort
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Here at WhisperClaims we’re passionate about compliance. We’re on a mission to ensure our users have the best support when it comes to providing a first class service to their clients.
And it’s no secret that HMRC are currently on their own mission: to stamp out abuse of the R&D scheme and ensure better compliance with their guidelines.
Nobody relishes the prospect of having to justify themselves in an HMRC enquiry. And whilst there is no way to completely avoid this unwanted attention (sometimes it’s just random, see our previous blog on this), there are some steps we can take to at least reduce that risk and give some comfort to your client.
In my opinion, this is the first hurdle that many fall flat at. As an advisor on R&D tax relief, it is vital that you yourself have an understanding of the legislation set out by HMRC. If you’re preparing your client’s claim, then they are expecting you to be an expert. What actually constitutes “R&D”?
Have a structure to your meeting. For starters, forget about costs; they’re irrelevant until the end. If you’ve got no activity, you’ve got no costs!
Start by talking about the legislation (over and over if needed), and then ask the client what work they are doing in relation to that. Too many times, we hear about advisors not challenging their clients on the technical aspects of their work. Fair enough—the advisor is usually not necessarily an expert—but if it doesn’t feel right to you, imagine how it looks to HMRC. Simply remind the client of the guidance. Be the trusted advisor and keep them on the straight and narrow.
In reality, for the majority of companies, the R&D spend should be a small amount of the costs through a financial period.
Why? Most companies carry in their respective well-proven trade. Any ‘Research and Development’ being done is usually not the majority of what their business does throughout the year. Because of this, HMRC don’t normally expect to see staff members spending 95% of their day overcoming scientific uncertainties.
So, by being unrealistic with staff apportionments, you are again holding up a flag to HMRC. As an example, just work out what their annual leave entitlement is as a percentage of their overall working time; you’ll quickly see that high percentages are rarely realistic. Similarly, are you working out the subcontractor and EPW costs accurately? Only time spent on the technical uncertainties of a claim are qualifying.
Whilst the necessity to provide project write-ups with every claim is only coming into legislation in 2023, it has long been deemed best practice to provide one as supporting evidence of the claim. This means taking a couple of representative projects that would make up 50% of the claim value should be included.
HMRC don’t want to hear about commercial goals—R&D relief is for innovation. So, they want to hear about the challenges involved, but particularly what and how many times it went wrong and the measures taken in an attempt to overcome these setbacks. If there are no challenges, there is no R&D. But key to this is that the challenge must be tackled by an expert in that field. There’s no point in having your client, the newsagent, overcoming scientific uncertainties of software development (based on a true story!).
The WhisperClaims App is designed by a team of professionals with years of R&D tax relief experience. Collectively, we have dealt with most industries and scenarios, and the app is built with this experience in mind. At every turn, you are pointed to ask the relevant question and potentially challenge the answer entered. There are instructional videos for every section should you need it, and links to the relevant sections within the CIRD—the end product being a comprehensive, robust report that should put both your client and HMRC at ease.