Gerry MacCrossan
In recent years HMRC has identified and successfully challenged several spurious claims for Research and Development (R&D) tax credit relief made by purported ‘R&D Consultants’.
Many of these claims have been for projects that did not satisfy the criteria for the tax relief, and some included overstated expenditure and consequently have been abusing the scheme.
The R&D rules offer legitimate claims and generous tax breaks. For a company that is a Small or Medium-sized Entity (SME), qualifying expenditure attracts a tax deduction of 230% of the amount spent, which can then be traded in for a tax refund of 14.5% if the company is loss-making. Thus £100,000 of qualifying R&D expenditure would potentially result in a tax refund to a loss-making company of £33,350. Most R&D consultants charge a fee based on the amount of the claim.
To qualify for R&D relief, the expenditure must be incurred as part of a specific project to make an advance in science or technology. The project must relate to the company’s trade – either an existing one or one that the directors intend to start up, based on the results of the R&D.
Further, the company must be able to explain how a project:
- looked for an advance in science and technology;
- had to overcome uncertainty;
- tried to overcome this uncertainty; and
- could not be easily worked out by a professional in the field.
In summary, R&D claims are often very worthwhile, but many strict requirements must first be met. If you are approached by an R&D Consultant or otherwise believe you may be incurring eligible R&D expenditure, please talk to us, and we will help you file a compliant claim.