GUEST BLOG: How to Build a Strong R&D Tax Claim: Strategy, Compliance & Smart Documentation
A message from Sarah: Having been through HMRC’s R&D compliance checks myself, I know how complex and frustrating the process can be, especially for founders driving innovation. After seeing how many of you resonated with my LinkedIn post, I asked the team at CBTax to share their expert advice. Huge thanks to Chris Dunn & Yameena Patel for this insightful blog.
What is an R&D Claim?
The R&D tax relief scheme is a UK government tax incentive designed to support businesses investing in innovation and pushing the boundaries of science or technology. Relief is provided in the form of Corporation Tax relief (for profitable organisations), which also extends to loss making companies, often in the form of a cash credit.
This has provided many companies, especially start-ups, with a much-needed cash injection to support businesses seeking to advance a field of science or technology (SorT) and overcome scientific or technological uncertainty.
In practical terms, this can include the development of new or existing products, devices, systems, services, or processes that would be acknowledged as an advance by other competent professionals in your field.
The R&D tax relief scheme is incredibly valuable to founders building innovative businesses, providing financial support to help fund development activities.
What’s Changing and Why Founders Need to Know
Since Q3 of 2022, there has been an increase in the number of R&D compliance checks, to ensure claims are legitimate and that businesses are accurately claiming for eligible activities and associated costs. This has led to notable changes in filing requirements and (in line with updated guidance which came into effect on 8 August 2023) additional tasks that now need to be effectively managed prior to submission.
“A well-structured R&D process, embedded within your day-to-day activities, can be the difference between submitting a successful claim, or successfully defending your claim during a compliance check.”
The ‘Campaigns and Projects’ (C&P) department at HMRC is perhaps the greatest risk to founders and emerging businesses accessing the R&D tax relief scheme. C&P generally cast an indiscriminate net when opening enquiries, leading to a substantial number of genuine claimants being caught in the cross hairs.
One trigger point is based on certain trade sectors that are considered higher risk. However, each case must be assessed on its own merit.
As we saw in response to Obu’s post on this subject (if you missed it you can catch up here), there is no end of stories where claimants and advisors have reached an impasse with HMRC on their case, leading to withdrawal of the claim.
With the level of R&D claims across the UK at 65,690 in 2022/23, HMRC simply do not have the resource to assess all claims from the outset. This results in HMRC often paying first and asking questions later (something many people submitting claims are simply not aware of).
Claimants should be aware that HMRC can generally open a timely enquiry within approximately 12-months from the date the claim is filed. It is now crucial for businesses to ensure they are compliance ready, and it is ever more important for businesses to perform their necessary due diligence during the claim preparation process and when selecting an R&D advisor.
How to Protect Yourself During the Claim Preparation Process
Documentation is key: On a practical level, keep an audit trail of research conducted, technical drawings and iterations, photographic evidence, change logs, prototypes, failures and key project milestones.
Explain the innovation clearly: What scientific or technological uncertainties did the company seek to overcome? What was the current state of knowledge? What were the limitations or barriers preventing established systems/processes being applied or readily transferred/adjusted?
Capture your team's capability: Demonstrate the credibility and competencies of the competent professionals involved on your projects i.e., demonstrably working at a high level, relevant qualifications, industry awards or notable public recognition. Justification from credible professionals in the given field of SorT will help to substantiate your claim.
Get expert advice: Work with a reputable specialist who understands the evolving R&D landscape. Perform due diligence when choosing an advisor to represent your company. It is recommended to work with a CIOT-registered company with an in-house resolutions team. And read the small print! Ensure enquiry support is embedded within the fee structure.
Prepare as if your claim will be checked: Substantiate all elements of your claim from the outset. Thorough documentation is key.
“Working with CBTax has been a gamechanger. Their expertise and support is helping me navigate an incredibly challenging process—something I simply wouldn’t have known how to handle alone. Sadly, I know too many entrepreneurs who didn’t have this kind of support, and whose startups haven’t survived as a result.”
Enquiry? Don’t Panic. Have a Strategy.
With the right strategy and expert advice, the enquiry process can be significantly expedited. One key area to consider, especially where an impasse has been reached on your case, is Alternative Dispute Resolution (ADR). ADR is a mediation process, designed to act as an informal method for both parties to discuss their points of contention. The intention is to try and reach a resolution, to prevent onward tribunal proceedings, when managed effectively. This has been used predominantly in reaction to C&P (Campaigns & Projects) enquiries.
From experience, the ADR mediators do a fantastic job of managing the process, with the HMRC officers assigned to the ADR case tasked with appraising and considering the information appropriately.
Final Thoughts: R&D Claims Are Worth It If Structured and Supported Correctly
R&D tax remains a highly valuable source of relief for businesses, to help drive innovation.
An increase in compliance should not deter companies from pursuing a claim. Navigating the R&D claim process with the right expertise and resource by your side can help to structure the claim effectively.
At CBTax, we have an in-house Tax Resolutions Team dedicated to helping our clients navigate the HMRC enquiry process. We have assisted both internal and externally prepared R&D claims, achieving numerous successful outcomes.
If you’re uncertain about whether R&D tax relief may be applicable to your business; how to navigate the claim preparation process, or require assistance with a current HMRC enquiry, do not hesitate to reach out to the CBTax Resolutions Team: taxresolutions@cbtax.com.