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What Should Be Included in an R&D Tax Relief Claim?

Research and development (R&D) projects are unique. Each one is designed to overcome specific uncertainties and requires a different approach, which often cannot be foreseen from the outset.

That makes describing what qualifies for R&D tax credits, and how to ensure all the necessary information is included in a claim, particularly challenging for assessors and advisors alike. However, understanding the scheme and why it was created helps us identify the information HMRC needs to approve an application and ensure you benefit from the incentives designed to stimulate investment.

Preparing for greater scrutiny

More than £4 billion is now awarded through R&D tax relief each year, over half of which is claimed by SMEs. But HMRC recently revealed that nearly £300 million of fraudulent claims under the SME scheme have been identified and prevented. This has led to greater scrutiny of applications, which means the information provided needs to be clearer and more thorough than ever.

Online templates have been created with the intention of supporting claims – however, any business that relies on such an approach runs the risk of missing out valuable information or failing to provide the detail HMRC needs to see.

Character limits, for example, can prevent the full disclosure of the work required for complex projects, while rigid templates do not take into account the nuances of each situation and the uncertainty they were intended to overcome.

"Templates seem like a good idea in theory, but in practice an R&D tax credits claim is a key document that supplements your company’s tax return," Matt Parrett, Director of R&D Tax Shop, explains. 

"Compiling an application alongside an experienced R&D advisor is the best way to ensure you provide the right information and receive the tax relief or credits that you're entitled to."

Choosing what to include

When we work with clients on R&D tax credit applications, we focus on answering HMRC’s four key questions about a project. While the approach will be different for each individual company (and each project), this explanation of the questions should help you when it comes to gathering information, and even when thinking about how to direct and structure your research efforts.

What scientific or technological uncertainties were encountered?

Remember that not every problem is an uncertainty. Assessors need to see that your project was intended to resolve a specific issue and your explanation needs to include details such as why the problem was not routine, written in a way that a person who is not an expert in the field can easily understand.

How and when were the uncertainties overcome?

You won't need to go into huge amounts of detail, but this is your opportunity to explain your work and the processes involved in the project. From the planning stages, through the methods and the materials used, to the testing and analysis required to gauge its success.

Why wasn’t the knowledge being sought readily deductible by competent professionals?

This question covers several key components of your claim, as you'll need to explain why an obvious solution was not already available in the market or easily worked out by industry peers. You'll therefore need to demonstrate the expertise of those who worked on the project. There may have been past failed attempts to resolve the uncertainty, or the circumstances may be new or unique.

What is the scientific or technological advance?

By this point, you will be able to clearly explain what was achieved through the project. But remember that it must be understood by someone who is not an expert and may not have been familiar with your industry before assessing your claim. Your project does not have to be deemed a success to be eligible, as tax credits reward the attempt at an advance and the R&D itself, rather than the commercial outcome.

Building your case

If each of these questions is answered clearly and thoroughly, you should have a strong case for R&D tax relief. This information will then be supported by a breakdown of costs, which will include staff salaries, pension fund contributions and National Insurance for the proportion of time spent working on the project. Qualifying support staff and subcontractors will also be listed, as will any consumables or materials used during the process.

At this point it is more important than ever to work closely with an expert who understands how to identify all relevant spending and compile a comprehensive claim. Many businesses have been slow to take advantage of the financial incentives available to them, in part because they are apprehensive about the application and the potential for HMRC enquiries.

But our R&D tax credit services include dealing with HMRC on your behalf, so you can rest assured you are professionally supported throughout the process of claiming the rewards your business deserves.