While many in the R&D industry are pleased to see better guidance from HMRC on how to prepare claims, if you’re a busy with a lot of claims or other client work it might feel like just another complex set of rules you have to work out how to apply to your own clients’ claims.
The good news is, we’ve reviewed the GfC3 thoroughly and highlighted some of the most useful pieces, so you can start using the new guidance to help, rather than hinder, your work.
We’ll look at how the guidance can help you clarify:
- The role of a competent professional,
- The timeframe and scope of an R&D project,
- How to use the examples to underpin the eligibility of your own clients’ projects.
The role of a competent professional in an R&D project
While the DSIT guidelines do explain who might be considered a Competent Professional in an R&D claim, there’s not much information given about the role HMRC expect that person to have played in the R&D project itself.
We already knew that you can’t just name anyone as your competent professional. You’ll need to demonstrate their expertise by showing that they have: a high level of qualifications, extensive experience, scientific publications, or some form of public recognition.
In the GfC3, we learn that the competent professional’s role in the project is to identify the desired advancement and the relevant field of science or technology. They also need to establish the baseline of knowledge or capability in the relevant field to demonstrate that there really is an advancement. They can then go into further detail on the specific uncertainties that prevent the advancement from being made.
So, the competent professional has to be qualified and they have to have taken the appropriate role in defining the R&D project – the baseline, the advance and the uncertainties. It’s not enough for the client to draft in a competent professional after the fact to try and find earlier work which may qualify. HMRC will expect to see evidence of their contribution.
Establishing the timeframe and scope of an R&D project
Another area where the existing guidance could be clearer is in the explanation of the boundaries of an R&D project. A lot of claims have been challenged in this area, and the GfC3 provides more detail on boundaries to help advisors and claimants to give the right information.
During a compliance check, HMRC might test the boundaries of an R&D project to determine the validity of the claim. Essentially, they’ll try and determine whether claimed-for activities are firmly R&D, or whether they extend to a commercial project. These can be tricky lines to draw, but GfC3 stresses the importance of getting it right.
The critical factor here is that only costs that directly or indirectly contribute to resolving the specified advancement can be claimed for. Your client must have a specific R&D project already in place, and its boundaries must be clearly defined. This means that incremental improvements to existing products or practices don’t qualify for relief unless they’re part of a clearly defined R&D project.
GfC3 examples can help establish eligibility or R&D projects
One of the most useful additions of the GfC3 are the specific examples used to illustrate key points of eligibility. This is potent information to have at your fingertips when constructing a claim or responding to a compliance check. Rather than citing DSIT guidelines without context, GfC3 provides specific examples that you can reference in defence of your claim. This makes your narrative much stronger and easier to defend.
Here’s an overview of a few of their examples – there are many more, and much more detail, in the GfC3 itself.
Example 1 – routine work that qualifies as R&D
A business has developed a new piece of collapsible furniture. This could involve some R&D activities, but much of the design work is routine. The claimed-for R&D project is restricted to the design and development of any new components needed to provide the additional functionality for the piece of furniture.
That isn’t to say that routine processes never qualify. The guidelines provide an additional example of the development of a new bio-active stent. To better understand how to develop this new product, the team conducts a review of current technologies and testing of existing materials. This work is qualifying R&D even though it might use known methods. This is because the work’s express purpose is to gain knowledge of how to overcome the uncertainty.
Example 2 – activities that contribute to resolving an uncertainty
A professional sports team has attempted to improve training recovery time through dietary changes. The activity of fitting monitoring devices and processing data would be considered R&D, but not the training session itself. This is because it doesn’t represent an activity undertaken to resolve specific scientific or technological uncertainties.
Once a technological uncertainty has been resolved, it’s important to exclude any further activities that might be required for the success of the overall commercial project.
Example 3 – activities that seek to advance science or technology
A food product has been reformulated to reduce fat content whilst maintaining shelf life. If current food preservation technology doesn’t solve extension of shelf life whilst maintaining flavour, then the work would represent qualifying R&D.
But, a project to develop a new food product with a different flavour (but using existing preservation methods) would not be R&D. This is because it doesn’t seek to advance science or technology. Instead, it merely adapts an existing recipe creation process in a routine way.
How the GfC3 can help you with R&D tax relief enquiries
It’s important to remember that there are multiple teams within HMRC, and their views don’t always line up. The compliance team might challenge projects that the policy team would not, and that’s been an ongoing issue over the past year.
Ultimately, the documents released by the policy team are the definitive source of determining eligibility. If you can make a convincing argument that accurately references the guidance, the compliance team will have a much more difficult time denying your claim.
Where to learn more about GfC3
If you’re keen to learn more about GfC3, our other recent article explains how you can use the guidelines to improve your screening process. We’ll be releasing more articles on the guidelines soon, so sign up to our newsletter to make sure you don’t miss any.