As many of you have now heard, HMRC is stepping up their compliance checks of R&D tax credit claims but are you 100% confident your R&D tax credit claim qualifies? HMRC told the House of Commons that they believe 50% of all R&D tax credit claims, or over 40,000 claims, are in error.
This is a big number. For the most part, the reason HMRC is making this assertion is that R&D projects claimed by companies do not meet the eligibility criteria to be considered R&D. Software companies are no exception.
Here are the top five reasons why companies are ineligible:
- You have not identified the Technological Uncertainty (TU). This criterion is the most important one to be met and is often misunderstood. Many companies fail to identify an uncertainty that is technological. For example, saying that you did not know if the software could be developed at a certain cost point, is not a technological uncertainty. In the area of software development, you need to look at performance issues. Such as integration, security, scalability, and new algorithms that cannot be readily solved without experimentation.
- You are in the wrong field of science. Many companies fall into the trap of describing their R&D project that falls within social science. For example, companies in fintech, market-tech and retail-tech might be developing software that predicts the market or human behaviours. Economics and human behaviour are social sciences and do not qualify.
- You have not identified the competent professional. As the HMRC inspectors do not have a technical background, they rely heavily on the company’s competent professional who is responsible for the R&D claim. HMRC wants to see someone who has technical or scientific experience, knowledge and academic background to carry out an R&D project. If the inspector feels the person lacks technical credibility, the R&D claim will be in jeopardy.
- You have not researched if your R&D project is already in the public domain. HMRC will carry out their own internet search to determine if the company’s R&D project is already public knowledge. Many companies do a poor review of the baseline technology before starting an R&D project and many do not document this important step.
- You are in an industry in which HMRC suspects have little eligible R&D. For example, R&D claims made by restaurants are an area of concern for HMRC.
How can RDP help?
Nothing is more important than ensuring you have an eligible R&D project. This is where RDP Associates excels. We have over 35 years of experience and have prepared over 10,000 R&D tax credit claims. Our staff are technical specialists in all areas of technology. Which include software, engineering and manufacturing, agriculture, life sciences, and civil engineering.
Are you asking yourself the following question – “Are you 100% confident your R&D tax credit claim qualifies?” If so contact our team at RDP today on 0208 214 1341 or email Jenni at [email protected].