when not to claim for R&D tax

When should you advise your client not to claim?

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Obviously, in our line of work, we’re keen to see as many eligible companies claim for R&D tax credits as possible! However, there are always times when it’s best to pause and work out if it’s better for your client not to claim. Here’s our guide to when it might be best to advise your client against claiming.

1. They’re not eligible.

Easy one first – if the organisation or its projects don’t meet the eligibility criteria, then it shouldn’t be making a claim for R&D tax relief. This could be because it’s not a limited company, or is doing research into non-eligible areas, such as social science. It might also be that it does do work in an area of science or technology, but everything it does is routine.

what not to claim for

2. They’re not comfortable claiming.

We occasionally talk to companies who have been pressured in to making a claim. They’re often manufacturing companies that know they don’t do eligible work, but have been told by unscrupulous advisors that they can ‘find’ eligibility and put in a claim. In these cases, submitting the claim risks an enquiry for your client and damage to your reputation with both your client and HMRC – it’s just not worth it!

3. You’re not happy with the claim.

Your client sends you claim documents prepared by a third-party provider, and you can immediately see that the claim isn’t right. It might be that you can see glaring discrepancies between the accounts you prepared and the claim, or that the work described in the documents doesn’t line up with what you know of your client’s activities, but you find yourself in a difficult position – either submit the claim and risk an enquiry, or refuse to submit and risk an upset client. It’s tricky, but we’d always advise against submitting a claim that you’re not 100% comfortable with, so it’s definitely worth taking the time to double check everything.

4. They could get better tax relief from other schemes.

Companies in the creative industries have other options for tax relief that might turn out be easier, more appropriate or have a better rate of return for them. For clients working in the areas of filmmaking, animation or video games especially, it’s always worth checking which tax reliefs they’re eligible for. You can only claim one tax relief on each set of costs, so making an informed choice as to which to go for is key.

5. They’re applying for a grant.

According to State Aid rules, only one State Aid can be applied to only one project. This means that not only can a company not claim SME tax relief on a project that has received a state aid grant, you also can’t claim State Aid grant funding for a project that has already received SME tax relief. It’s an unlikely scenario – most grant bodies won’t fund a project that has already started – but it’s worth bearing in mind.

6. The R&D work belongs to someone else.

Ownership of an R&D project can occasionally be a bit murky, especially in group companies or when subcontractors are involved. In the former case, it can be the case that the R&D is carried out on Company B’s premises, but all of the costs of the R&D are borne by Company A, usually the holding company. In this case, unless Company B reimburses Company A for the R&D costs, they wouldn’t be able to make a claim.

Companies that bring in subcontractors to do R&D on their behalf can also have difficulty working out who can make the claim, and it often requires analysis of the contractual arrangements to resolve.

7. The return on investment isn’t worth it.

There are several situations where the work involved in preparing an R&D claim is more than the R&D claim is worth. For example, start-ups with no staff and directors only paid in dividend aren’t likely to have significant costs. It can also be a problem for companies that do a lot of subcontracted R&D for large companies or that have received a lot of grant finding and therefore have to claim through the RDEC scheme, which can often make small claims economically unfeasible. We’d always advise taking a little time at the outset to ballpark the R&D expenditure before starting in earnest to prepare the claim.


How to write an R&D tax relief technical narrative

With HMRC’s new mandatory requirement for project descriptions on all submissions, we wanted to share our experiences to help others to write their best possible technical narratives.

Available to download here.

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