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What does good R&D Tax Credit advice look like?

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Nico Fell

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What does good R&D Tax Credit advice look like?

Formula 1

As we recently outlined, not all R&D Tax Credit advice is the same. So, what makes the difference between a good Research and Development claim and one that may leave you at risk of a HMRC query?

R&D tax credits have been around since 2000 and are a very generous tax initiative for Limited companies involved in R&D, however, in the last two to three years, a number of so-called “experts” have appeared in the market, making all sorts of wild claims about the activities and costs deemed to be attributable to R&D, when in truth the costs associated must be properly justified within the guidelines.

It’s not good enough to simply say that being challenged to overcome a problem when attempting to complete a project proves that a company is involved in R&D. The truth is that any project must be judged not just by the difficulty in completing it, but by the benchmark of what is currently available? What information is out there, whether from public sources or privately purchased sources such as consultants etc. and whether the experience of the company attempting to complete the project is aligned with it?

For example, an electronics company specialising in security systems attempting to produce a new medical device aimed at identifying Coronavirus may well be involved in R&D in order to complete the project, but is their expertise truly aligned with the project? Would they need to bring in external expertise in order to have a chance of completing?

Take for example, the recent developments in respiratory technology, brought about after COVID came to the UK by Formula One (F1) Teams. Arguably, whilst the F1 teams had considerable expertise in the engineering aspects of fast development, the expertise of University College London’s mechanical engineers and clinicians provided the knowledge dimension that ensured the direction of the project relative to the aim of it. The collaboration of both sets of knowledge and experience / expertise provides the basis to clarify the competencies surrounding the activities undertaken and therefore the costs that meet the R&D tax credit guidelines.

It is specifically this sort of understanding regarding the criteria required to understand the activities and costs associated with challenging the current position, overcoming the technological or scientific difficulties and attempting to improve or enhance a product, process or even a service, regardless of the final outcome, that makes the difference between a genuine, justifiable and well supported R&D tax credit claim and one that may be simply an unfounded tax mitigation exercise.

Whilst HRMC do their utmost to ensure that claims are processed quickly for Limited companies, don’t be fooled into thinking it’s a licence to reduce a corporation tax liability, those companies that fall foul of the true meaning of R&D for Tax Credit purposes not only risk losing any real benefit that they may be entitled to, but also risk a full tax enquiry that can go back years, incurring significant expense to defend and wasting a lot of time in the process.

My advice: seek the help of an experienced partner whose reputation can be verified rather than one that makes wild and spurious claims without the proven track record.

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