Some specialist R&D claims firms have automated selling processes that are designed to convince businesses that they are undertaking R&D, and so will qualify for a tax repayment by claiming R&D tax credits.Those R&D claims often succeed because HMRC hasn’t properly reviewed them, but this is changing.
For example see the case of AHK Recruitment Ltd below which is worth reading.
HMRC has also updated its Corporate Intangibles Research and Development Manual to include common errors it finds when it examines an R&D claim (see CIRD80540 below).
These errors cover almost every aspect of the R&D scheme but the list starts with the basic: “project activities outside the scope of R&D for tax purposes”.
A myth being circulated in the building trade is that alterations to offices or buildings to accommodate covid-secure working qualify as R&D - they don’t.
For a project to qualify as R&D for tax purposes it needs to involve “an attempt to achieve an advance (in knowledge or capability) in a field of science or technology, through the resolution of scientific or technological uncertainty.”
All those elements need to be present:
• an attempt to advance knowledge or capability
• in science or technology
• resolving a scientific or technological uncertainty.
Guidance on what is R&D for tax purpose is set out in a paper linked to below, which is referred to in the R&D regulations.
Even if the project does qualify as R&D there are plenty of other mistakes that can be made with an R&D claim; from including the wrong categories of expenditure, to claiming under the wrong scheme (SME or large company).
If you are considering or have undertaken genuine R&D work our R&D tax experts would be happy to review your project or R&D claim to ensure HMRC don’t have a reason to challenge it years down the line.
Common errors in R&D claims
AHK recruitment v HMRC [TC07718]
https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j11675/TC07718.pdf
Guidelines on meaning of R&D for tax purposes
"This information is taken from the weekly Tax Tips, published by the Tax Advice Network, for which you can subscribe at www.TaxAdviceNetwork.co.uk"
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