It is worth keeping a close eye on tribunal decisions, relating to R&D Tax Credit claims, to see if there are any changes in interpretation and lessons to be learned. We were not involved in this claim. This software related R&D Tax claim was turned down by an HMRC inspector and the appeal was rejected at tribunal.
In my opinion nothing particularly new comes from looking at this tribunal decision. It is a case study in how not to claim correctly and how not to handle an HMRC enquiry. In that respect it is useful in giving an example of what not to do. I am not going to completely dissect the information in the tribunal decision. I can see several apparent errors and am surprised this went to a tribunal.
The full detail can be found here:
1. Claim correctly examining the work in line with the R&D Guidelines in particular BIS 2004.
This tribunal involved HMRC turning down what ultimately was a software related R&D claim. I use the word “ultimately” because the initial submission did not make that clear and focused on human behaviour/social science. R&D claims are restricted to advances in hard science (Chemistry, Physics, Biology) and technology. Social science does not qualify.
2. Identify the competent professional. He/She must be involved in and understand the claim. Without that involvement you have no claim.
It appears that the claiming company did not get particularly involved in defending the claim. Just the adviser “Optimal Compliance”. A competent professional as defined was not involved. As a sales point some R&D Tax Consultancies or accountants will claim to “do all the work for the claiming company”. This is attractive. But it is also completely incorrect. To claim successfully and have a defendable claim at enquiry the claiming company must be involved in the claim. Plus understand how the guidelines relate to the work claimed. An R&D claim goes on a company tax return. Ultimately the company and its Directors are responsible. Reading the tribunal decision that collaborative process appears to be lacking.
3. Handle the claim and any HMRC questions promptly and professionally.
The trail of correspondence and the timelines are revealing in the tribunal decision. An R&D claim involves technical understanding of the Guidelines, but it also involves good judgement about them. An HMRC Inspector also must make a judgement. If he or she sees an initial submission not following the guidelines. Then struggles to get answers to their reasonable questions on time, and sees the fundamentals of the claim shift. It is obviously going to impact the judgement made. My only real surprise about this case was how patient the inspector involved was. HMRC have the power to demand information and fine a company for each day the evidence is not produced. R&D claims involve public funds & should be taken seriously.
4. Find an experienced and qualified R&D adviser and listen to them.
We started a move to establish a professional body for R&D advisers. Currently, it is a business anyone can start with no qualifications. We were for example approached by someone who had bought a marketing list, gone on LinkedIn, and signed up three R&D claim clients at a rate of 30% of the claim benefit. They approached us to solve the one problem they had; they did not know anything about making an R&D claim! I really would advise claiming companies to carefully consider who they appoint as advisers. Look for established consultancies with good track records. Not a salesperson who calls you up and tells you that you qualify, and no work is involved! Or someone that gives you a DIY online form. As the detail of this tribunal shows there is quite a lot involved in an R&D claim. But with over £5 billion of support to UK claimants a year it is worth the effort. Effort is required by all involved. If you do not make the effort don’t complain about the train wreck that may follow.
Our HMRC enquiry service.
We have helped many companies who have claimed themselves or with other advisers and run into trouble at HMRC enquiry.
This process starts with a free no obligation document review. If a claim is baseless, we will advise you of that and not take on the work. If we think the claim is defendable, we quote a time-based fee to take on the work.
Please get in touch today to discuss your R&D Tax Credit Claim.