Are you ready for an R&D enquiry?

We have seen several companies surprised by the level of detail HMRC may require in support of an R&D claim. Often, they find out too late after the claim has already been filed, with insufficient supporting information retained. Collating the information within the 30-day window given can be difficult, particularly if the claim goes back a few years and key staff have moved on.

For that reason, Bright R&D is sharing extracts / examples from recent HMRC opening enquiry letters into R&D claims to help companies to understand the level of information that may be required, and therefore should be collated and retained prior to making an R&D claim.

I hope this is helpful. Please feel free to use it to assess whether your R&D report already provides this level of detail and consider whether you would be able to answer these questions with confidence.

If you are worried, it is much better for you to approach HMRC to correct things than wait for an enquiry. Penalties charged on any adjustment should be reduced for unprompted disclosure. Get in touch if you have questions or need some help.

Example questions*

1. Detail of the number of Research & Development projects claimed for within the period.
2. Research and Development Activities – For each project:
   An explanation of what the scientific or technological advance(s) is. You should consider what scientific or technological advance is being sought. Science does not include work in the arts, humanities and social sciences (including economics). It’s not enough that a product is commercially innovative; you can’t claim in respect of projects to develop innovative business products or services that don’t incorporate any advance jn science or technology.
3. An explanation of what the scientific or technological uncertainties involved in the project were.
   Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field. Technical problems that have been overcome in previous projects on similar systems are not likely to be technological uncertainties.
   You should set out at a high level, in a form understandable to the non-expert, what these uncertainties were and when they started and ended.
4. Detail of how and when the uncertainties were overcome. Describe the methods adopted to overcome the uncertainties and the investigations and analysis undertaken. If the uncertainties were not overcome, explain what happened.
5. Detail as to why the knowledge being sought was not readily deducible by a competent professional. You’ll need to show that the persons leading the R&D project are themselves competent professionals working in the relevant field. This might be done by outlining their relevant background, professional qualifications, and recent experience. Then have them explain why they consider the uncertainties are scientific or technological uncertainties rather than routine uncertainties.
6. Costs and Calculations – For each project: A breakdown and analysis of the qualifying expenditure claimed along with the steps taken to calculate the additional enhanced expenditure. Your breakdown should categorise costs per allowable legislated headings contained in CTA 2009, ss1123-1142. In categorising these costs, you should use the following sub-headings:
   A. Staffing Costs
   B. Software or consumable items
   C. Qualifying expenditure on externally provided workers
   D. Sub-contractor payments
   E. Relevant payments to subjects of a clinical trial
   F. Any other costs included in the claim to relief
7. For staffing costs, the name and job title of every individual included in the claim to relief. For each individual, you should include their total wage paid in the period, and the value included in the claim for relief as well as details of the qualifying activities they undertook.
8. For qualifying expenditure on externally provided workers, the name of every individua! included in the claim to relief, as we!! as a brief description of their role in the R&D project(s). For each individual, you should include the total paid in the period, and the amount included in the claim for relief.
9. For sub-contractor payments, the name of every subcontractor included in the claim to relief, as well as a brief description of their role in the R&D process. For each, you should include the total paid in the period, and the amount included in the claim for relief.
10. For any apportioned costs, the rationale and methodology used to come to this apportionment, with supporting evidence where available.
11. Confirmation that all the amounts included above have been paid and incurred. Where payment is not a transfer of funds please indicate where this has occurred and why you believe the amounts satisfy the paid condition outlined in CIRD82100.

*Please note that these are example questions only, from para 24 Sch. 18 FA 1998 enquiries.