Making R&D Easier - new guidance from HMRC!
In November 2016 HMRC published some new guidance: “Research and development tax relief - Making R&D easier for small companies”. It follows months of consultation with a select group of knowledgeable and interested parties.
The full document is 44 pages long, so not a quick read. It “outlines how tax relief for Research and Development (R&D) works for small and medium-sized enterprises (SMEs)” and on the whole does what the title suggests, by covering off many of the common areas that give rise to errors or confusion for claimant companies and their advisors.
The sections include: What is R&D tax relief? (Commonly also referred to as R&D tax credits.) Which projects qualify? What costs qualify?
There is also a useful section with some simple case studies drawn from the following industries: The Agri-food Sector, ICT, Advanced materials, Advanced engineering, Life and health sciences, Construction.
Interestingly the guidance states that “There is no additional record keeping requirement specifically for the purposes of claiming R&D relief” which, while strictly true, could be misleading. Although it also goes on to say: “You should be able to give a summary of the R&D project undertaken and explain how the project is R&D within the tax relief definition. It would be helpful if you provide this information in a short report at the time of making your claim.”
In my experience, if HMRC wants to ask informal questions or open an enquiry, they would expect you to have records that are sufficient to identify how you arrived at your R&D costs. These should ideally be broken down at the individual R&D project level.
At RandDTax (www.randdtax.co.uk) we support companies to assess their R&D costs on a project by project basis and we work with them to compile a list of all their R&D projects and a narrative for up to ten example projects, as we know this is the best way to present a robust R&D claim.
It is very easy to get complacent, particularly as HMRC only looks at a very small number of claims. But if when they do look (which could be months or even years after your relevant tax return has been accepted), they find you have been sloppy in your record keeping, or ‘innocent’ errors have crept in, or there is no evidence for how you arrived at your R&D costs, or for how you assessed that a project qualified – your R&D claims can unravel. In the worst case that can lead to repayment of large sums of money, plus penalties. At best you will end up delving through your records to prove your case in retrospective, which can be quite challenging and extremely time consuming if you did not compile sufficient records at the time.
Download HMRC’s guidance here
Find out if you qualify for R&D tax credits by following this link
Are you ready to find out if you qualify or how much your R&D claims could be worth?