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Business Services  •  Business Tax

How to navigate the new, stricter R&D tax credit rules

By RJP LLP on 29 June 2023

The government has made changes to the R&D tax relief legislation in recent Budgets. The changes have been introduced to reduce tax losses resulting from reported fraudulent claims, which were most recently estimated at £469 million. 

In addition, the number of enquiries being opened by HMRC into R&D claims has increased dramatically and applicants must now adhere to far stricter qualifying criteria. This means that understanding eligibility to submit a claim for R&D tax relief has become more complex. Key issues include being able to demonstrate that an R&D project has overcome industry wide uncertainty and the requirement to submit a very well researched and written claim. Whilst many companies have been adhering to these criteria, not all have, and HMRC are only now really starting to enforce it.

Common reasons for HMRC rejecting R&D tax credit claims 

According to HMRC’s guidelines, these are some of the most likely reasons for rejecting a claim:

  • Claimant company cannot show a competent professional worked on the project;
  • R&D activities were subcontracted, or there is little evidence of achieving a technical advance or overcoming uncertainty;
  • Claim documents contain technical inaccuracies.

How to define eligibility for R&D tax relief

When it comes to applying for R&D relief, it is important to be aware of the qualifying criteria, however because every project is different, whether the criteria is met is inevitably  subjective. 

The headline here is that R&D for tax purposes is defined by HMRC as taking place when a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology.

Assuming this has been researched thoroughly and a project is considered to be eligible, the claim needs to include, amongst other things:

  • a technological or scientific baseline for conditions in the wider industry plus how this baseline information was obtained;
  • the specific advance that the R&D achieved (or attempted to achieve) and how this advanced existing knowledge and techniques in current use;
  • the inability to identify an acceptable existing solution without investing in the R&D project;
  • the technical uncertainties that were overcome;
  • which competent individuals were involved in the project;
  • additional information being required from 1 August 2023.

How to avoid an R&D tax relief enquiry

In summary, we advocate following these basic rules to help avoid your R&D tax relief claim being rejected, or a tax enquiry being opened.

  • Check the fine detail and avoid making any obvious mistakes or typos on the claim;
  • Provided clear, simple and concise information based on HMRC’s qualifying criteria;
  • Don’t overstate human resource costs, HMRC are unlikely to accept that people were undertaking innovative development for 100% of their working time;
  • Be able to argue the case for your project investment convincingly.

One of the best ways to ensure that your R&D tax relief claim is successful is to work with a tax advisor who has experience of submitting successful claims in your industry. To discuss how RJP could support you with an R&D tax credits claim and help avoid an enquiry, email us via partners@rjp.co.uk.

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