A recent case has demonstrated the need to have sufficient evidence where claiming for R&D tax relief.
In the case of AHK Recruitment Limited, the First-tier Tribunal found that the appellant company had not provided sufficient evidence to demonstrate that it had carried on qualifying R&D activities. Further, it also found that it could not prove that the costs incurred were related to activities undertaken as part of the project.
The case also demonstrated the need to engage with HMRC when under enquiry, in particular by the relevant ‘competent professional’ who should be able to substantiate the claim made and provide support for the activities carried out.
Something which may be classed as R&D within the business may not necessarily meet the strict qualifying criteria for obtaining tax relief, and only certain costs incurred on an R&D project can be claimed under the tax credits scheme. Although it may take time to understand which projects qualify and the related costs, in most cases it will be worth the effort as R&D claims can result in substantial cash back for the company or a deduction in the overall tax liability of the business.
What records are needed
There are no set requirements regarding records to be kept in support of an R&D tax credits claim, as HMRC recognise that this will need to vary for each company. However, a few examples of the types of supporting evidence may include:
- Project list
- Briefing notes
- Technical assessments
- Details of the competent professional(s) involved in the project
- Timesheet entries to support staff cost claims (where available)
- Breakdown of the costs incurred
- Documentation of any assistance provided by external providers and costs incurred
A detailed project description is also helpful in explaining how an advance in science or technology was sought, what uncertainties were faced, why those uncertainties could not easily be resolved by a ‘competent professional’ and how they were overcome.
Seek professional advice
We would recommend that professional advice is sought when looking to access R&D tax relief as the rules are complex. Ensure that the adviser has a good track record and is from a reputable firm.
In engaging an R&D adviser, it is important to clarify what documentation the adviser proposes to prepare in support of the claim and what support they will provide in the event of an enquiry by HM Revenue and Customs. Bear in mind that the claim is a self-assessment by the company; the company Directors therefore remain ultimately responsible for both the accuracy of the claim and the veracity of the supporting documentation, even though an R&D adviser might be involved in its preparation.
How we can help
We can assist with preparing R&D claims and supporting documentation to mitigate the risk of enquiry by HMRC. We can also help if you have made a claim directly or with another adviser which has become subject of an enquiry.
Please contact a member of our Innovation Taxes team if you would like to discuss your R&D tax claim.