HMRC`s expectations of Claimants in claims for R&D Tax Relief – the Thirteen Steps

In October 2023, HMRC published guidance in the form of a checklist of steps that it expects a company to take before claiming R&D tax relief.

No guarantee is given that companies that follow the guidance and claim R&D tax relief will necessarily escape a compliance check though HMRC states that keeping a record to show that the company or the agent has followed the thirteen steps and is satisfied with the result, will help the company reduce the risk from incorrect claims.

HMRC makes the point, often overlooked by companies claiming the relief, that the facts of an R&D claim always remain the company`s responsibility, even with professional advisors involved.  Only the business fully understands the work undertaken and claiming the relief is part of the self-assessment process.

The Thirteen Steps

Steps 1-9 are to be carried out by the competent professional or competent professionals in the projects with steps 10-13 to be carried out by the R&D agent and company with the assistance of the competent professionals.

HMRC defines a competent professional as someone suitably qualified or experienced in the field, usually, someone directly involved in the project with professional expertise relevant to the advance being sought. It can be someone employed by the company or external.

In respect of their field of expertise, HMRC expects a competent professional to have all the following attributes:

• they must be knowledgeable about the relevant scientific or technological principles involved.
• they must be aware of the current state of knowledge in the field as a whole.
• they must have accumulated experience and have a successful track record.

It is stressed that having worked in a field or having an intelligent interest alone, does not make a person a competent professional. They must have enough knowledge and experience relevant to the qualifying project.

Good evidence may include one of the following examples:

• high-level qualifications in the field, alongside continuous professional development.
• a significant number of years’ experience working at a high level in the field.
• a good scientific publication record in the field
• industry awards.
• other public recognition for contributions to the field.

Steps 1-9

HMRC states that the competent professional, or competent professionals, in the relevant field of science or technology should:

1. identify projects that sought to create new knowledge or capability.
2. confirm that these projects relate to a qualifying field of science or technology, briefly explaining how each project is a part of the identified field.
3. name the exact uncertainties the projects were seeking to resolve.
4. explain why the answer to each uncertainty was not readily deducible.
5. briefly set out both:
   • the state of relevant knowledge or capability in the field
   • why resolving these uncertainties would represent an advance in the the overall knowledge or capability of the field at the time the work was undertaken.
6. identify exactly where each uncertainty began and would end.
7. briefly explain how the approach to resolving each uncertainty or group of uncertainties was a project or sub-project.
8. set out the plan for resolving each uncertainty or group of uncertainties.
9. set out the steps your projects took to resolve each uncertainty, from the beginning of the qualifying project to either:
   • the end of the accounting period
   • the date the project ended if that is earlier.

Steps 10-13

HMRC states that the company or its agent should then, supported by a competent professional as needed:

10. identify the activities that directly contributed to resolving each uncertainty as part of each project to advance a qualifying field of science or technology
11. identify qualifying indirect activities that were part of the project and are listed in paragraph 31 of the DSIT guidelines
12. identify the qualifying costs of the qualifying activities from its records,
13. check if any of the costs of qualifying activities are restricted or disallowed by GAAP, the DSIT guidelines or tax law.

Preparing the Claim

From 8 August 2023, all companies must submit an additional information form (“AIF”) to HMRC to support a claim for R&D tax relief. If the additional information form is not submitted, any claim for R&D tax relief will be disallowed.

Within the AIF, a short summary must be supplied describing;

• the field of science or technology that the project relates to
• the level of knowledge or capability that existed at the time the project started and which the company intended to advance.
• the advance in that scientific or technological knowledge the company aimed to achieve.
• the scientific or technological uncertainties that the company faced.
• how the project sought to overcome these uncertainties.
• which R&D relief is being claimed and the amount of the qualifying expenditure for each project.

For R&D agents who have always prepared technical narratives to support their client`s claims, this is nothing new and the project information contained within the technical narrative can be used to complete the AIF. However, it is still good practice to complete the checklist as a precursor to preparing the claim and to evidence to HMRC the steps that were taken to ensure that the claim is compliant.