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Two aspects of HMRC’s approach causing trouble for R&D advisors

13th Feb 2024
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R&D tax relief training and support

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HMRC has continued their more aggressive approach to policing the scheme, but R&D advisors have new tools available to help adapt their claims processes.

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R&D tax relief is a complex field, and the legislation can be tricky to interpret. We’ve recently seen updates to the scheme rolled out almost annually. You might find it difficult to keep up with everything, especially when you’re already tackling all the work involved with preparing and supporting claims.

Since the start of 2023, the HMRC compliance team has also taken a more aggressive approach to policing the scheme. They’ve narrowed eligibility criteria, and the rate of compliance checks is higher than ever before. Overall, HMRC has really been cracking down on R&D tax relief to try and reduce the number of non-compliant claims.

While the goal of stamping out fraud and error is an honourable one, it’s made things tougher for honest and knowledgeable advisors and SMEs. The good news is that 2024 looks like it’ll bring some much welcome change. 

The new merged scheme, set to come into effect for accounting periods that start on April 1st, should alleviate some of the difficulties you might be facing. Despite this, it’s unlikely that things will completely revert back to the more relaxed days of old. HMRC has emphasised that they’ll continue to strictly monitor the eligibility of claimed-for projects and challenge them with compliance checks when necessary.

Fortunately, HMRC’s policy team have also produced new Guidance for Compliance (GfC3) which advisors can use to help them improve the quality of their claims and adhere to HMRC’s unforgiving standards.

HMRC’s raises the bar for ‘eligibility’

While the strength of your claim still lies in the narrative report and supporting evidence, some areas are now much more difficult to claim for. Software projects in particular have been frequently challenged by HMRC, and industries that were borderline before are a total no-go now.

You’ve probably felt this when screening clients. You might be a bit more vigilant about the type of project that you take on, looking for claims that are safer bets. This is generally a good idea. While there’s always been a chance of receiving a spot-check enquiry, HMRC seems increasingly willing to challenge even the projects that advisors feel have a clear case for eligibility. The GfC3 provides questions and guidance that can help you with the screening process.

HMRC Compliance checks are more involved than ever

Compliance checks have never been easy, but in the past HMRC was more willing to work with advisors to get their claims up to scratch. Now, compliance checks are tougher. You’ll find that named caseworkers are hard to come by, and you can be left doubting yourself as HMRC asks for information that you know you’ve already provided.

This has been a major concern for many in the industry. Notably, the Chartered Institute of Taxation exchanged a series of letters with HMRC about how they’ve been policing the scheme. With the pressure that HMRC is facing, hopefully we can work towards some middle ground. In fact, we’ve even offered to give HMRC’s caseworkers access to some of our training courses.

This is another area where the GfC3 can go some way to help. It includes numerous example cases that can help you apply the DSIT guidelines to your own clients’ claims and demonstrate a compelling argument why they qualify for relief.

New Guidelines for Compliance (GfC3) are a powerful tool for advisors

These are just a couple of examples of how the new guidance can help you as an advisor. These GfC3 guidelines are distinct from DSIT guidelines, and they shed more light on the core building blocks of R&D tax relief.

Although the GfC3 guidelines are lengthy, we recommend that anyone preparing claims reads through them. They give advisors some powerful tools they can use to help combat the difficulties they’ve been facing.

GfC3 includes sections on:

  • How to identify a competent professional,
  • How to establish if the work qualifies as R&D for tax purposes 
  • Where a project begins and ends for the purposes of an R&D claim,
  • What evidence HMRC needs to see that a project qualifies.

As we mentioned above, it’s also full of examples of different types of qualifying projects, going much further than the sparse examples in the DSIT guidelines. These examples help illustrate key points of eligibility, and they can serve as a powerful tool in the event of a compliance check.

Our latest articles explore the new information and examples contained within the GfC3 and how you can incorporate this information into your work. In particular, we’ve covered how you can use it to improve your screening process and build strong R&D claims that stand up to HMRC compliance checks. We’ll continue to publish articles to help you understand and apply the GfC3, so make sure you’re signed up to our newsletter if you want to be kept in the loop.