Recommended approach to claims and record keeping

Recommended approach to claims and record keeping

In October 2023 HMRC published guidance (GfC3) on the process it expects claimants to follow when preparing a claim for R&D tax relief. Much of this guidance is the same as that found in the CIRD. However, the GfC3 also contains details about the steps HMRC expects claimants to have taken when assessing their projects which is not contained elsewhere. We've reproduced this advice here:

Planning ahead

HMRC consider that claims to R&D relief are more likely to be correct if the company is aware at the time that the work it is doing may qualify for tax relief.

Actions to take:

  1. Consider if you are planning to do something that may need new knowledge or techniques in a qualifying field of science or technology.

  2. Write down exactly what advances you are seeking.

  3. Write down exactly which uncertainties you need to resolve and the steps you plan to take to resolve them. The written plan should be in proportion with the amount of work needed and the amount of expense you expect. There is no need to write a ten-page plan for a project if a page of bullet points covers all the steps. We would expect you to already have detailed records of large or expensive projects, so there may be no need to write out a separate plan.

  4. Get the opinion of a competent professional in the field, often someone suitable already works on the project. The opinion should set out the information listed in the ‘Importance of a competent professional’ section of these Guidelines for Compliance.

The opinion does not have to be any longer than needed to briefly set out relevant facts and reasoning, but a simple assertion that the project qualifies as an advance will not be enough. Both you and HMRC need to understand:

  • the extent of the work
  • what made it a project to resolve a specified uncertainty
  • how the project sought an advance in a qualifying area of science or technology
  • where work to achieve the advance began and ended

Be specific, to say you are seeking an advance in the field of engineering would be too vague. You should:

  • name the field, and sub-field if appropriate
  • set out the advance you seek
  • set out exactly what uncertainties you need to overcome
  • say how the project advances the current state of knowledge in the field

Keep a written copy of the competent professional’s opinion with supporting reasoning. Include the relevant qualifications and experience of the competent professional. Without a written record, you may struggle to show evidence of your claim to HMRC if the competent professional is unavailable.

Looking back

You may find a project existed after it has begun or after it has finished. It is okay if you followed a plan or method amounting to a project, even if it was not called that at the time.

It is acceptable if you find that work you have already begun, or have finished, was seeking an advance in a qualifying field of science or technology. A competent professional can give an opinion on work that is ongoing or already completed.

It may not be practical for you to consider if a piece of work may qualify for tax relief until the end of your accounting period. If your company trades in an industry where seeking scientific or technological advances is likely, we recommend you think about both:

  • how you will be able to identify and provide evidence of relevant project activities at a later date
  • how you will identify and provide evidence of the qualifying costs of each qualifying project that you find to be ongoing or completed

Do so in a way that works for your business, while meeting your obligation to ensure your claim is correct.

For smaller projects, records you normally create while carrying on your business are often enough to help identify a qualifying project and its costs at a later date. Such records would need to be supplemented by the recollections of people directly involved in the work at the time.

Record keeping

Our recommended approach includes keeping good written records. HMRC do not expect you to create unnecessary records or spend money on expensive systems to track all the work you do. We recommend that you keep sufficient records to:

  • identify any qualifying projects
  • identify qualifying costs to enable you to make an accurate claim

This will help you to:

  • claim all the R&D relief to which you are entitled
  • make sure your claim is correct
  • answer any questions HMRC may have

You may not be able to record costs of specific projects on your systems. In this case, you will need to identify the expenditure for each qualifying project from your records of general costs incurred.

It is not unusual for some of the costs attributable to R&D projects to be an estimated proportion of known expenditure. If you make estimates, you should arrive at the estimate using evidence and reason. You will need to show that you incurred the expenditure and that your estimate of the amount of qualifying expenditure is based on facts.

We recommend you record the following:

  • the claim methodology
  • any use of sampling and the method used
  • the method used to arrive at any other estimated or apportioned figures

Large business customers should agree sampling methods with their Customer Compliance Manager (CCM) before preparing their claim.

It is good practice to keep relevant records from the beginning of the project. The records kept by each company can vary depending on the circumstances. However, if we check your claim the process is likely to be quicker and simpler if you have good written records.

Without records, you may find it harder to identify there was a project and harder to show your expenditure qualifies for relief. This can be a particular problem if staff who worked on the project are no longer available.

In the absence of written records, a detailed explanation provided later may be acceptable in some cases. You should be prepared to give detailed explanations of your claim, including but not limited to:

  • the uncertainty to be overcome
  • the point the uncertainty was identified
  • the point the uncertainty would be resolved
  • the field of science or technology
  • what the advance was
  • why it was an advance in the field
  • the method or plan to achieve it
  • the steps carried out
  • how you arrived at the qualifying costs

Evidence of a project we may need

If HMRC open a compliance check into your R&D claim, we may ask for anything reasonably needed to evidence your claim. This may include, but is not limited to:

  • seeing relevant documents
  • visiting the site
  • examining prototypes and final products
  • talking to employees

You should be able to supply evidence that a project existed. Examples of documents that you may have include project documents, such as planning materialexpense records, and other written records. If they were created as part of the project or are otherwise relevant, we may ask to see:

  • project charts
  • drawings
  • designs
  • test results
  • photos of prototypes
  • minutes of meetings
  • email exchanges
  • any other relevant records you hold

You should collate and keep evidence of test results or findings as part of research. Where development work is undertaken, you should keep evidence of the development work. For example, if you produce physical prototypes, then photographs of these prototypes showing modifications would be evidence of the nature of the issues encountered in developing the product. Read more on the R&D records HMRC may expect to see.

Whenever you provide information to HMRC, we will protect it in line with our duty of confidentiality.

It is important that you take care to get your claim right. HMRC expect you to keep records that allow you to send accurate tax returns and other documents to them.

If you are not sure about anything, you can ask HMRC or use a tax adviser, it’s still your responsibility to make sure your claim is correct. You should ensure you give them correct and complete information.

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