In recent years HMRC have identified and successfully challenged a number of 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 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 a number of 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.