Some specialist R&D claims firms have automated selling processes that are designed to convince businesses that they are undertaking R&D, and so will qualify for a tax repayment by claiming R&D tax credits.
Those R&D claims often succeed because HMRC hasn’t properly reviewed them, but this is changing. There are more cases of unsupported R&D claims being taken to the tax tribunals. For example see the case of AHK Recruitment Ltd, which is worth reading.
HMRC has also updated its Corporate Intangibles Research and Development Manual to include common errors it finds when it examines an R&D claim (see CIRD80500).
These errors cover almost every aspect of the R&D scheme but the list starts with the basic: “project activities outside the scope of R&D for tax purposes”.
A myth being circulated in the building trade is that alterations to offices or buildings to accommodate covid-secure working qualify as R&D – they don’t.
For a project to qualify as R&D for tax purposes it needs to involve “an attempt to achieve an advance (in knowledge or capability) in a field of science or technology, through the resolution of scientific or technological uncertainty.”
All those elements need to be present:
- an attempt to advance knowledge or capability
- in science or technology
- resolving a scientific or technological uncertainty.
Even if the project does qualify as R&D there are plenty of other mistakes that can be made with an R&D claim; from including the wrong categories of expenditure, to claiming under the wrong scheme (SME or large company).
If you have undertaken genuine R&D work we would be happy to review your R&D claim to ensure HMRC don’t have a reason to challenge it years down the line.
Written by the Tax Advice Network