The changing face of R&D tax relief

EVOLUTION. It’s a word synonymous with science that is associated with the concept of changing in order to survive. As such, it is a particularly apt description of the ongoing changes to HMRC’s interpretation of its R&D tax relief guidelines.

Introduced in 2000, the R&D tax relief scheme was, and still is, designed to encourage innovation in UK businesses by providing tax relief for money spent on R&D. The guidelines themselves haven’t changed since 2000, but the interpretation of them has evolved considerably as the scheme has become more popular and both HMRC inspectors and the companies claiming have developed a greater understanding of the scheme itself and what constitutes eligible R&D.

Maintaining a good working relationship with HMRC – understanding what it’s looking for and how it functions – is therefore vital for anyone hoping to benefit from the scheme.

First impressions count

The best way to get off on the right foot is to make a good first impression, which means preparing a robust claim. How do you go about this?

HMRC inspectors have limited time to review R&D claims, so your documentation should be as succinct as possible to make it easier for the inspector to make an informed judgement. That’s easier said than done when you need to provide: 1) details of the project; 2) the advance it is making; 3) the industry baseline; and 4) the problems that were overcome in making the advance (plus, let’s not forget, a clear breakdown of the costs involved).

To do this well, it is essential that you understand the science behind a claim. Whilst the science within a claim has always been important, HMRC has refined the criteria so that it is now much more focused on the underlying science and technology of projects, and whether an advance has been made with respect to a broad industry baseline.

This can be a challenging concept for companies, since R&D is typically just one component of a commercial development project, such as the development of a new product or manufacturing process using existing technology. By submitting projects that involve process improvements or new product development, however, companies may be opening themselves up to challenge by HMRC owing to the commercial aspects often associated with these kind of projects. That’s not to say that these projects wouldn’t be eligible, but HMRC will require a clear explanation of the direct advance in science and technology, not just to the company itself, but to the field as a whole.

Subtle differences that can make all the difference between HMRC approving or challenging your claim.

What if...?

In the event that HMRC does challenge your R&D tax relief claim, don’t panic. It doesn’t mean that they won’t pay out. They may just need more detail. More often than not, the inspector dealing with your case won’t have a scientific or technological background, so they may just require further clarification of the advance that has been made.

Another point to note is that the resources within HMRC’s R&D units are becoming increasingly restricted, so it’s more important than ever that you answer any questions the inspector may ask clearly and promptly. Keeping to deadlines not only ensures that the claim is wrapped up quickly, but also shows that you have confidence in your position. Asking for extra time to prepare a response may give the impression that a claim hasn’t been properly prepared prior to submission. A co-operative stance, on the other hand, shows that you have nothing to hide and should help create a good working relationship with HMRC.

Survival of the fittest

To survive in the ever-evolving world of R&D tax relief, you need to keep up with HMRC and resist the temptation to rest on your laurels. The best way to do this is to build and maintain a good working relationship with HMRC and individual inspectors. That way, you will develop a continually updated understanding of the types of work that qualify under the scheme and how they may be seen as an advance in science or technology. By maintaining a close dialogue with HMRC, you will also be well placed to provide them with the clear, concise descriptions of scientific advances and the systematic breakdown of costs that they require, making for a mutually beneficial and successful partnership.

Talk to Jumpstart

As the UK’s leading R&D tax relief specialist, Jumpstart delivers the best results. And that’s not only to do with claim size. Jumpstart is also known for the robustness and accuracy of our claims.

We maintain an excellent reputation with HMRC, who see us as experienced, knowledgeable and reliable when writing effective narratives for R&D tax relief claims.

Our technology-based approach to claim preparation is undertaken by PhD qualified Analysts with extensive industry experience in their own specific fields of science or technology. Our Technical Analysts are not only industry sector experts, but equally knowledgeable when it comes to the HMRC’s legislation, ensuring maximised, accurate and robust claims.

In a climate where the value of claims being disputed by HMRC has grown by almost 400% over a twelve-month period, the fact that we offer free enquiry defence as standard on every claim we prepare and submit gives our clients a cast-iron security.

To arrange a free consultation to discuss your own R&D tax relief specific circumstances, to identify how we can work with your team to improve the claim process and realise greater value for your business, contact the Ian Donaldson on 07527 635787 or email