As you know, there have been many changes to the R&D tax credit program over the past 2 years. Here are some of the common R&D questions we get from accounting firms and companies.

What are the chances of having a compliance check on an R&D tax credit claim?

It is estimated that 20% of all R&D tax credit claims filed are now undergoing compliance checks. That would mean that the chance of a compliance check every 3-5 years is very high, over 80%. Currently, compliance checks are quite arduous. Therefore, it is important that companies file their R&D tax credit claims correctly in the first place. Plus have the supporting documentation to substantiate the claim. We see many companies fall into traps.

One common trap is that the company will say “We developed a product that is very innovative that contains features not available on the market”. This statement will tell HMRC that the company does not understand the criteria as to what criteria need to be met to be an eligible R&D project. This would be a red flag for compliance check selection.

Has the definition of what qualifies as R&D changed?

Technically no. The definition of the tax act and guidelines has not changed. However, the definition is vague and ultimately judgement is required. So there is scope for HMRC to take a narrow view of what qualifies as an eligible R&D project. We have seen HMRC make the statement to the effect that due to the technology currently on the market, or in the  public domain, they don’t see that a technological advance has been achieved.

However, quite often the technological advancement and more importantly the technological uncertainty  has not been properly described. Further, HMRC’s review of what is in the public domain can be cursory. So it is incumbent on the company to ensure due diligence is undertaken before the project starts, in terms of a more thorough description of what is in the public domain.

If my claim is disallowed or reduced on a compliance check, can I make an R&D tax credit claim in future years?

The short answer is yes. However, you don’t want to make the same mistake that led to HMRC disallowing the claim in the earlier year. In other words, if you claim the same project that was denied in an earlier year this will likely be challenged. If you did not accurately describe the technological uncertainty or advancement , you should ensure you understand the concept involved or call us for a free assessment.

Do you or or your clients ask any of these common R&D questions

If you or your clients struggle with any of the above issues or have to deal with all the substantial changes to the program over the past 2 years then please don’t hesitate to contact us.