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R&D claims – evidence required

Date posted: 27th Aug 2020

It is important to remember that when making a claim for research and development tax relief, HMRC will expect that you will provide sufficient information for them to adequately understand the R&D that was undertaken.

In our experience, HMRC will require a minimum of an explanation of the scientific or technological uncertainty that was attempted to be resolved by the R&D work, the attempts made to resolve the uncertainty (even where there is a failure to resolve the uncertainty) and why the company’s employees and subcontractors can be regarded as competent professionals, in their field of expertise.

In addition to the narrative regarding the claim, HMRC will expect an analysis of the costs incurred. Allowable costs include employee’s wages, employer’s national insurance and pension contributions, consumable materials and subcontractor costs in relation to resolving the R&D.

HMRC take a keen interest in the size of your company and any R&D projects which are funded, either partly or in full by grants or customers contributions (as special rules can apply to limit the relief available, where funding is received).

Finally, HMRC will need to understand your company’s role in the R&D i.e. is it something that your company is taking a risk developing or are you a subcontractor aiding another company’s R&D projects.

In the recent tax case of AHK Recruitment, sadly the company failed to provide sufficient information to justify the R&D claim and ultimately the claim failed. Given that the government need to raise funds to repay for the hole in the country’s finances due to the COVID crisis, it is highly likely that they will be looking to open enquiries into company’s tax affairs and one area that could come under scrutiny, is any claims for R&D tax relief, particularly where the evidence of the R&D undertaken is poor or non-existent.

We have helped many of our clients prepare R&D reports for submission to HMRC, so we are well versed in this area of corporate taxation. Should you have any queries on the above or need further support, please contact our tax team here, who will be happy to assist.

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