As demonstrated in a recent WMBC update, HMRC has paused processing of certain claims to investigate some irregular claims. In order to reduce these irregularities, HMRC are tightening their controls and requesting higher quality R&D reports in support of the claim. The additional attention to the report writing is there to eliminate R&D fraud, which does happen, whether intentionally or not. If you are claiming yourself or via your accountant, who may not have time for the level of detail needed, this is the bit where things might get more complicated.
It will often be said an R&D report has two elements, a technical narrative report describing in words why the project qualifies and what the project is and an expenditure summary which shows the project expenditure and qualifying expenditure category and generates an R&D qualifying expenditure number for the tax return.
A common error which an experienced consultant will help you avoid is to view the two elements as being divorced. One done by a company’s technical professionals who worked on the project and the other an accounting or book-keeping task. They are in fact interdependent.
The R&D report should be written first and involves an assessment of the work done, on which the company has expertise, against the R&D Guidelines which an experienced consultant can explain and relate to the project with input from the company technical professionals. The write up of these must include a description of the qualifying R&D activity which is resolving scientific or technological uncertainty. This is vital as in the legislation this must directly relate to the expenditure claimed.
Following this the qualifying expenditure should be considered. An accountant or book-keeper might usefully supply the total figures, but it must be the competent technical professionals, like scientists, engineers, or developers, who decide what portion qualifies based on a consideration of the project against the Guidelines. A good consultant should robustly test these assessments at all stages against the Guidelines.
Once these two elements are complete a third element is actually filing the R&D claim. You might think “surely” this is a straightforward accountancy task? Well unfortunately in our experience accountants, who handle R&D claims irregularly, if it all, can make errors in this area. These errors can either cost a claiming company money or generate HMRC Compliance checks which can be very time consuming and delay R&D claim payments. The introduction of the R&D specific CT600L, in 2021 and changes in 2022, has been a source of error. Is an accountant who maybe handles one R&D claim a year, if any, fully on top of this detail? It is very unlikely. Again, a good consultant with an eye for the R&D related detail can help avoid these errors.
It might be tempting to save on costs and prepare the claim by yourself or via your accountant, who is already familiar with your business from a number’s viewpoint. A claim is a lot more involved that just a numbers exercise. A lot can go wrong, and this has only been touched on here.
There are many benefits to engaging an experienced R&D consultant. Not only will it take the pressure away from you having to complete every aspect of your claim, but also ensures that it is as accurate and efficient as can be. With our vast R&D tax expertise combined with extensive technical knowledge, we help generate a technical report to support your claim. We will be able to establish exactly what is claimable in your project, whilst making the process as smooth as possible for you.
We can help you to put both the accountancy aspect and technical report together and work closely with your accountant, providing a solid foundation to support your claim. Contact us today.
Tim Walsh CTA MBA – Director RandDTax.