R&D Tax Relief Enquiry - How to Deal with an Enquiry
Following our last article in which we examined the changing R&D tax relief enquiry landscape, and what you could expect from an enquiry, below we have set out our ten top tips for dealing with an enquiry:
1 - Provide a clear, concise account of how the company sought an advance in a field of science or technology, through the resolution of scientific or technological uncertainty. Your write-up should be prepared with a meticulous level of technical detail of the scientific or technological advancement.
2 - Start by clearly outlining the baseline in technology that any advance sought was being measured against and defining the limitations of the (pre-advance) technological baseline.
3 - Avoid heavy emphasis on commercial gain or benefits. Concentrate on the scientific or technological elements and enhancements. HMRC want to know how it has advanced the baseline and how the technological uncertainties could not be overcome with routine and off-the-shelf methodology.
4 - Distinguish between business-as-usual challenges and challenges that go beyond what a company would be expected to encounter in its line of business.
5 - Do not assume that just because there has been an advance in technology in one year, there will be another in the following year. Treat each year as a new start in reviewing the steps listed above.
6 - Clearly reference the legislation and BEIS guidance throughout the narrative. Provide HMRC with reassurance that you have read and understood the guidelines.
7 - Give documentary corroborating evidence such as test reports, patent applications, grant applications, pictures, videos, schematics, correspondence between suppliers or sub-contractors or internal meeting notes.
8 - Give details of the competent professional, outlining their relevant qualifications and experience in the appropriate field of science and technology. Far too often we see claims aiming to advance technology in IT and Computer Science and the competent professional assigned to this is the MD with a management consultancy background, for example. If the basis of the claim is in IT or Computer Science, then the competent professional needs to be a software developer heavily versed in software and IT programming. This may be an internal staff member, an agency worker, or a sub-contractor.
9 - Provide a full breakdown of qualifying expenditure. The costs should also be supported by evidence such as invoices and/or contracts and confirmation that all the expenditure has been paid.
10 - In the last two months, we have seen numerous legitimate claims being lost by taxpayers who were not able to supply the required documentary evidence. HMRC no longer have the resource to conduct meetings at clients’ premises where they can “see it for themselves”, enabling them to circumvent the need for demanding levels of documentation.
We hope you find these tips helpful. In next week’s article, we will explore what you can do if you have your R&D tax relief claim rejected by HMRC.
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