Getting your R&D claim right – who should be involved?

Preparing your R&D claim can be unlike any other piece of tax work as it requires the Finance team working closely with the technical team to complete the submission. Therefore, getting the right input from your technical team is critical to a successful claim.  

It would appear from the recent AHK Recruitment tribunal case that HMRC are now starting to focus on the Competent Professionals preparing the claim. Allowing this part of the claim process to go awry, or involving the wrong people, could result in your claim being rejected. What do you need to understanding the judge’s ruling in this case?

AHK Tribunal judgement

AHK Recruitment Ltd submitted a claim in relation to developing an internal IT platform to assist with their recruitment activities. What is clear throughout the ruling is HMRC’s frustration with understanding why the development project is eligible. This is compounded by concerns around the experience of the Competent Professional and whether they have the relevant experience to determine whether the project is qualifying. Remember this is the person who has to determine whether the project is an advance in science or technology. Ultimately the judgement comes down on the side of HMRC and highlights that the Competent Professional must have relevant training or qualifications as “expertise through experience” is not sufficient.

What does this mean in relation to your claim? Here are our three key take-away points.

1.      Don’t confuse the role of the Competent Professional

This might sound like a daft question. But there can be many parties involved in preparing your R&D claim. The AHK Recruitment judgement makes clear the R&D tax credit adviser cannot take over the role of the competent professional. They are not their to identify the eligible spend and defending a claim. Eligibility assessments need to be made by those directly involved in your project.

An external adviser or online tool is not going to be able to determine whether an expenditure item is related to the qualifying work. Only your technical team will have this level of knowledge. Therefore, does your technical team thoroughly understand the R&D Tax Credit guidelines?

2.      Demonstrate the Competent Professional has relevant experience

This is one area we felt where the judgement could have a major impact on start-ups and SME businesses. Typically these businesses are trying to manage their cash flow and cannot afford to recruit large numbers of employees. Instead they will subcontract development work onto third party businesses. Where does the Competent Professional sit within this arrangement?

The judgement states that “expertise through experience” is possibly not sufficient for the individual to be deemed a competent professional. The judge in this tribunal case looked for further evidence from technical journals or publications or evidence provided from a competent professional with relevant industry experience. We believe now is the time to think who is involved in preparing your claim and how you present your Competent Professional to HMRC.

3.      Ensure your Competent Professional is willing to speak to HMRC

If HMRC have questions they may want to speak to your Competent Professional. Receiving an enquiry can be a daunting prospect for most people, even more so if you are asked to sit with an Inspector to answer questions about your claim. Maintaining your relationship with HMRC is important and avoiding answering HMRC queries is a proven way to cause lasting damage. How will you ensure your technical team are comfortable to speak to HMRC? The written submission is also critically important at this point and we have set out our thoughts in a tech and biotech thought piece

Final thoughts

The AHK Recruitment tribunal case shows HMRC are serious about ensuring the R&D tax credits scheme is being applied correctly. Our reading of the judgement is that the going forward HMRC will be more willing to challenge claims that are submitted and to test the knowledge of the Competent Professional. Many companies will need to up their game in relation to preparing their R&D claims otherwise they could start seeing protracted enquiry processes. 

If you want to try our interactive guide to see whether your claim might be subject to an enquiry then click here.