R&D tax credits are a valuable incentive for businesses which engage in qualifying R&D activity. Our separate article here explains more about the tax relief available and our robust claim methodology.
However, it is important not to skimp on the work needed to prepare a robust R&D claim. It is vital, not only to keep complete and retain appropriate records of the staff time and other qualifying costs incurred, but also to document clearly and carefully the objectives of each R&D project undertaken and to demonstrate that it falls within the rules on which projects are eligible for relief.
HMRC have stated publicly that scrutiny of R&D claims is to be stepped up over the coming months. In addition, a recent Tax Tribunal case illustrates the problems which can arise if insufficient care is taken over a claim.
The Tribunal were therefore not satisfied that the business had demonstrated that their project was qualifying R&D.
The lesson from this case is that there is no substitute for doing the necessary spadework to justify and document an R&D claim properly. Doing so properly takes time and effort (and potentially adviser fees) but is worth the effort in the long run.
Businesses which envisage a sale or taking on investment in the short-to-medium term should be particularly careful to ensure their R&D claims are robust. Otherwise they run the risk not only of HMRC rejecting their claim, but also of value being lost following a pre-sale due diligence exercise.
Our approach to R&D claims is to prepare a comprehensive report, suitable for submission to HMRC, which sets out in full the basis for the claim and details of the eligible expenditure, and which has been compiled through discussion with the technical staff directly involved in the R&D projects and analysis of the underlying accounting records.
If you would like to discuss this in more detail, please get in touch with our Head of R&D David Nolan or your usual Claritas contact.
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11 August 2020
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