R&D Tax Reliefs are becoming more complicated, with greater scrutiny from HMRC and more stringent requirements for a claim to be successful. This means it is becoming more important than ever to ensure claims are handled correctly by professionals who really understand both the nature of the qualifying project and the legislation surrounding the scheme.
If care is not taken and expert advice is not sought, R&D Tax Relief nightmares can occur. In this article, as Fright Night approaches, we’ll explore some of these R&D nightmares and offer tips on how you can avoid them when claiming R&D Tax Relief.
Failure to submit the Additional Information form
The risk of documentation issues has grown in 2023 with HMRC’s introduction of the mandatory “Additional Information” form. This form must include extensive information on the company, the project, its expenditures and any agents used.
Forgetting to submit the R&D Additional Information form to HMRC before you submit the tax return will result in the R&D claim being rejected.
This could be disastrous if this was very close to the filing deadline date and could result in a company timing out to claim for that period. Resolving this issue would mean submitting the Additional Information form and an amended return, as long as there is still time to do so!
Not pre-notifying HMRC
If you have not claimed R&D before and have an accounts period beginning on or after 1 April 2023, if you do not pre-notify HMRC of your intention to claim within six months of the end of that accounts period, you will not be able to claim for that period.
To solve this issue, make sure you submit the pre-notification form to HMRC or submit the R&D claim within six months of the end of the accounts period.
“Too good to be true” advisers
Many companies engage with R&D boutiques or advisers, but not all of these advisers are sufficiently qualified or possess the skills to submit robust R&D tax relief claims.
If you engage with an R&D advisor who promises you “£x amount of R&D tax credits” and that they will take care of it all without needing any input from you or the technical team, this should be seen as a big red flag. It is doubtful any R&D claim can be verified without talking to the technical experts in the company to gather the technical information needed or the finance team for the costs.
The likely result of such a situation is a painful HMRC enquiry.
The solution? Make sure to conduct due diligence on any professional advisor you appoint to help you with your R&D tax relief claims. And remember: if it sounds too good to be true, then it probably is.
Inadequate or incomplete project records
HMRC are opening enquiries into more and more R&D Tax Relief claims and will ask companies for contemporaneous project records, including the costs attached to the projects.
If you don’t have these records available, HMRC can disallow the claim.
The trick to preventing this is straightforward: maintain good records of any R&D projects you carry out, including project timelines/milestones and any research done in relation to the knowledge/capability that existed in the industry at the start of the project (to justify the advance being made). Also, track the activities carried out at each stage (including who carried them out) and track R&D expenditure along the project's lifespan.
Not seeking the right professional advice.
The potential for significant issues grows when companies prepare R&D tax relief claims without taking professional advice (or, at least, carefully reading the HMRC guidance manuals to understand what qualifies as R&D for tax purposes).
The danger here is that it is easy to misinterpret business R&D, where there is limited technical uncertainty or where you are only advancing your company products, as R&D for “tax purposes”. It is unlikely that such a project would qualify, and HMRC will almost certainly reject the case.
If you are unsure about any aspect of your R&D tax relief claim, we strongly recommend seeking professional advice, as well as reading the HMRC guidance.
R&D tax is a very complex area of tax legislation, and with the increased compliance activity from HMRC, an HMRC enquiry can be a real R&D Tax Relief Nightmare.
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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