When completing R&D claims, the underlying principle of any claim is, has the company been carrying on qualifying R&D activities? There is a misconception on what actually qualifies as R&D activities and time and time again, we have seen company’s being advised that they have qualifying R&D, when they don’t, for example, simply, having a new innovative idea or introducing something new to your business that transforms how you operate doesn’t always constitute qualifying R&D activities.
Getting the claim wrong can be quite costly to companies. In addition to the stress and worry that can be associated with a tax enquiry, getting it wrong can result in a repayment of tax, interest charge and a penalty which can have significant financial consequences. It is important to remember, that once HMRC or the Revenue Commissioners process the R&D claim and where applicable, issue the tax refund, the R&D claim can still be enquired into. HMRC have a period of at least 1 year (with the exception of Advance Assurance) from the date of the submission to investigate the R&D claim (the date could vary if it is a re-submission or if fraudulent claims have been submitted). The Revenue Commissioners have a period of 4 years to enquire into the R&D Tax Credit Claim.
Some horror stories, from R&D claims completed by other firms that we have seen, have included, over aggressive claims for employee time, misunderstanding on what a consumable cost is, claiming for non-qualifying IT costs, claiming for sub-contractor costs incorrectly, preparation of reports that give an overview of the projects but do not provide sufficient evidence of the what the scientific technological advancement was, the uncertainties and how these were resolved, incorrect treatment of grants or ignoring the fact that there was a grant or other subsidised expenditure, not maintaining contemporaneous records, claiming R&D tax credits on non-qualifying projects and in some cases claiming R&D tax credits on the same R&D activities in different accounting periods.
In the current Covid-19 Pandemic, we have seen HMRC and Revenue Commissioners releasing much needed cashflows from R&D tax refunds. However, it is crucially important that due care and diligence is taken to get the R&D claim calculation correct. These claims and repayments could be enquired into at a later date. Going forward, there will also be lots of factors that could impact on the R&D calculation arising from the various Covid-19 financial supports that are currently available. Cashflow will be important and certainty that any claim completed and submitted, if subject to a challenge by the tax authorities at a later date, is correct to avoid any unnecessary time, stress and financial implications.
Before making a R&D tax credit claim, it is extremely important to ensure that the individual/team/company that you have engaged with to prepare the company’s R&D claim have the requisite skills to do so and are operating within professional guidelines and ethics, for example, are they a member of Chartered Accountants Ireland or the Chartered Institute of Tax? It is crucially important that the team consists of suitably qualified professionals working on the claim, understand your business and can identify the activities that qualify and more importantly, don’t qualify. It is imperative that you ask for their credentials, testimonials, PPI, compliance with all normal industry standards, for e.g., anti-money laundering, GDPR, tax legislation etc. It is also essential that you understand the basis of the engagement, what their role is and what your role is, request a copy of all reports and the R&D claim calculation, what the situation is should the R&D claim be enquired into by HMRC or the Revenue Commissioners and the time period that the R&D claim can be enquired into.
Company’s self-assess for tax; therefore, it is very important that you are aware of what reliefs/deductions are being claimed, the basis of any claim and can you stand over the calculation if it is ever challenged.
At FPM we have a dedicated in-house Innovations Team consisting of Chartered Accountants, Chartered Tax Advisers and a range of Technical consultants, for e.g chemical, mechanical, electrical, construction engineers, food scientist, IT engineer, to name but a few. Our team takes a holistic approach to R&D which includes, internal review/ implementation of processes to capture R&D activities, R&D grants, technical support, sources of funding, preparation of R&D tax credit claims, patent box and knowledge development box claims. Our R&D team can work with your company to take your ideas to life or help resolve any issues that you may have with existing R&D claims.
Our last piece of advice -Make sure your R&D advisor is a Trusted Advisor.