IS YOUR R&D CLAIM SITTING COMFORTABLY?

Have you recently submitted an R&D tax credit claim?

How comfortable are you that it’s correct and won’t attract attention that could lead to a compliance check?

In their latest publication, Legislation Day (L-Day) on 20^th July 2022, HMRC announced an array of forthcoming changes and amendments to how R&D tax credits would be processed and assessed.

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CONTINUED TARGETING OF ABUSE & IMPROVING COMPLIANCE

From the proposed legislation:

1. The government continues to tackle abuse and boundary pushing by requesting further information from companies when making claims.
2. All claims should be made digitally and will need to give details of where an agent has supported the company, and a senior officer of the company must endorse the claim.
3. Moving forward, the government will be considering whether further measures are needed.

POINT 1

Many R&D claims lack the detail HMRC needs to enable them to come to a decision on the validity of the claim because whoever did the claim didn’t fully document the R&D in such a way as to ensure it ‘qualified’ for the scheme. This is quite common and can trigger a compliance check.

POINT 2

This is to ensure that you, the business owner, who signs the Corporation Tax return (CT600), fully understands and identifies with the content in the technical report and associated financial costs with the claim.

Unfortunately there are many R&D boutiques who don’t do this. As a result, you could be committing fraud unknowingly if you can’t substantiate the qualifying R&D and associated costs, if your claim is subject to a compliance check.

POINT 3

Further measures… what further measures?

HMRC need to be comfortable with the projects, figures and any rationale or methodology in compiling the claim. So, you’ll need to demonstrate the methodology you’ve used and explain how you arrived at the figures you’re claiming. When looking at further measures HMRC may take, it could include record keeping to demonstrate:

• Your competent professional’s capability
• Who decides what is or isn’t qualifying R&D for tax purposes
• How you compile accurate records for your R&D
• How you account for R&D costs

Secondary legislation will be introduced with effect from April 2023, setting out the additional information to be provided in relation to an R&D claim. This information will include:

• A description of the R&D undertaken
• A breakdown of qualifying costs
• Details of any agent who’s advised on the R&D claim and;
• Space for sign off from a senior officer of the company

By signing off your R&D claim, you’re acknowledging you’re responsible for the technical and cost information contained in your claim and that you’re claiming in the correct scheme – either Small and Medium-Sized Enterprise (SME) or Research and Development Expenditure Credit (RDEC).

In other words, if there’s a problem, HMRC will hold you responsible. Still comfortable? 

From 1st April 2023, HMRC are also expanding the scope of rules in the Self Assessment legislation so they can be used to ‘recover overpaid SME payable tax credit and RDEC to allow HMRC to recover such amounts where the taxpayer made a mistake, despite taking reasonable care.”

If you’ve overclaimed or claimed in the incorrect scheme, you’ll have to repay the difference. Additionally, you may also be liable for penalties and/or fines up to the sum owed. Still comfortable? 

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two QUESTIONS TO ASK YOURSELF

1. Does your current R&D tax credits provider share the technical report and financials with you BEFORE submitting your claim?
2. Do they walk you through the methodology used to compile your claim?

If you answered ‘no’ to one or both of these, then consider – what are they hiding?

There are many more actions that you could and should be taking to enable HMRC to be ‘comfortable’ with your R&D claim. They’ll be looking for specifics on how the claim was compiled and the data sources that you have available rather than ‘guestimates’ of data which won’t be enough.