As the R&D Tax Credit programme continues to evolve and HMRC continues to tighten the rules of eligibility, I would ask you to consider “what questions should I expect if HMRC decides to review my R&D claim?”
Has a company been advised incorrectly
If a company has completed and submitted its R&D claim the correct way, it is more likely than not that an enquiry process would proceed rather smoothly. However, if a company has been advised incorrectly and / or a sub-standard R&D claim has been submitted, HMRC more likely than not may ask the following:
- What process was undertaken to qualify eligible R&D activities?
- Does contemporaneous documentation exist to support the R&D claim?
- What was the methodology utilised to capture R&D expenditures?
While these questions are general in nature, HMRC more likely than not will get into specifics on the technical side of an R&D claim. For example, they may ask questions such as start and end dates of R&D projects, milestones achieved for each R&D project a claimant has deemed eligible and were the R&D activities carried out by competent professionals in their respective fields.
Financial Questions
Financial questions posed by HMRC may involve documentation requests such as contracts or statements of work a company may have with claiming third party costs or externally provided workers. Questions pertaining to associated risk and intellectual property are also other areas that could be broached to ensure a given company has the right to claim R&D Tax Credits, especially with the new merged scheme now in place replacing the two old schemes.
There are also questions posed about the claim methodology itself. For example, how did a given company capture and calculate the R&D claim. The likely question to be asked, “what was your methodology?” If the standard response is only “a percentage of time” without any reasoning and / or an actual methodology, penalties are likely to result from the R&D claim submission.
These are just a few questions that HMRC may ask. In addition, they have the right to carry out an on-site analysis at your company. If the R&D claim itself is not up to their standards, it also opens them to review prior claim submissions past the two-year filing deadline.
Do not put yourself in a situation where you hire an R&D Tax Credit service provider that asks you to jointly determine R&D eligibility. This is a red flag and can significantly increase your exposure if HMRC opens an enquiry, which could end up taking a lot of your time instead of obtaining your R&D tax benefits in an efficient and timely manner.
Choosing the right R&D Tax Provider
You need an R&D Tax Credit service provider, like RDP Associates (RDP), that knows how to answer these questions, in addition to putting together a good claim methodology. Moreover, to advise the right way to go about generating a “bullet-proof” R&D claim and advising how to document for future R&D claim submissions.
At RDP, our plan and process are simple. You focus on your company while we focus on your R&D claim.