It’s no secret that HMRC is putting more resources into inspecting R&D Tax Relief Claims amid growing cases of error strewn or seemingly fraudulent claims being submitted by businesses in the UK.
HMRC has already recruited 100 additional R&D inspectors and they are deploying new strategies and state-of-the-art tools to help them crack down on abuse of the scheme.
You may be using your accountant, or an R&D specialist firm to manage your claims for you, but it is vital to remember that accountability for submitting compliant R&D Tax Relief claims lies with you as a business.
Many R&D specialist firms are not regulated (unlike accountants), so it is extremely important that you understand what is being submitted on your behalf and know which compliance issues to look out for. This will help you avoid costly penalties or, in more extreme cases, criminal investigation.
R&D Tax Relief claim compliance checklist
Our team has put together the following checklist, which will help you determine how robust your R&D tax relief claim is. We strongly encourage you to review your claims, both past and future, against this compliance checklist.
| Question | If you answered "Yes" | If you answered "No" |
| Are you aware of the HMRC (BEIS Guidelines) definition of qualifying R&D projects or at least had what projects qualify explained to you by your R&D advisor. | Good. It is very important to understand what qualifies for the relief. | Consider reviewing the guidelines next to the projects being claimed for, or ask your advisor to explain why projects meet the qualifying criteria. |
| Have you used an R&D specialist advisory firm (or an R&D specialist within your appointed accountants) | Good. A qualified specialist will have a greater understanding of the legislative rules and requirements for a robust claim. | We strongly consider seeking the advice of an R&D specialist instead of a generalist. |
| Do you submit a detailed R&D report to support the R&D claim made in your tax return? | Good. Detailed documentation is extremely important for a robust claim. | You may run into trouble if insufficient evidence or supporting information is submitted to HMRC. This will be mandatory from April 2023. |
| If you use a specialist advisory firm, are you given a copy of your claim before it is submitted? | Good. As you are accountable for the claim, it is very important that you understand exactly what is being included, and whether it actually qualifies. | Always request to see the full claim before it is submitted. A specialist in R&D should provide this as a standard practice. |
| Have the main technical specialists in your firm had input into the R&D report projects narrative? | Good. Technical detail by those involved in a project is essential to a robust R&D tax relief claim. | A potential problem, as it will be much harder to verify the technical accuracy of your claim narrative. |
| Have you applied a “sense” check to the level of R&D costs being claimed for? | Good. If a claim value sounds too good to be true, it probably is. | You should always sense check your claims to ensure you aren’t claiming more than you qualify for. This is a common and often costly error. |
| Do you use agency or freelancers to help with R&D projects? | See below | No action is necessary |
| (If you answered “yes” to the above) Have you checked if these costs actually qualify within the R&D rules? | Good. Checking the eligibility status of the agency or freelance workers R&D costs are part of the claim process before the submission. | We strongly recommend doing this to avoid claiming on costs which do not qualify. Self-employed workers costs are often not eligible in particular. |
| Have you received any grants or subsidies towards an R&D project? | See below | No action is necessary |
| (If you answered “yes” to the above) Have you considered that SME R&D relief may not be available for these projects | Good. It is extremely important to understand the differences between the SME and RDEC schemes. | Check urgently. One of the most common R&D tax relief claim errors is companies claiming for the more generous SME scheme when they actually fall under the RDEC scheme for larger companies. |
| Are any of the Directors recharging R&D costs to a connected or Personal Service Company? | This is a common error in R&D tax relief claims. Directors cannot recharge their own personal costs from a connected company to perform sub-contracted R&D. | Good. No action is necessary. |
| Do you feel adequately supported and advised by your professional advisor | Good. As well as specialist knowledge, good communication between you and your R&D tax relief advisor is essential for avoiding errors. | We recommend seeking a new advisor. Poor communication and support, make costly errors far more likely. |
Have your R&D Tax Relief claims reviewed by an expert
This checklist includes quite a lot of essential information, and it can be both difficult and time consuming to give your R&D tax relief claims a complete review. It is, however, essential to ensure your claims are being done properly.
If you lack the time or wider legislative knowledge to review your claims yourself, the Radius team at Shorts Chartered Accountants offers a free, no-obligation R&D Tax Relief claim review service. The review will be performed by Darryl Hoy, a former HMRC R&D tax inspector, who knows exactly what to look out for in claim documents.
Darryl Hoy
Darryl is the Technical Director of the Radius team. He is a specialist in Research & Development tax reliefs, having previously worked at HMRC as an R&D Tax Inspector.
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