A t UHY, w e have a process f o r completing R & D t a x credit claims with technical internal checklists a n d quality control procedures t o ensure every R & D t a x credit claim i s correctly prepared a n d i s accurate a n d complete. However, a s corporation t a x agents f o r o u r clients, w e a r e sometimes asked t o file other firms’ R & D claimsand have a duty t o review them under o u r professional bodies’ rules o n professional conduct i n relation t o t a x (PCRT). I n this article, w e look a t five o f t h e most common mistakescompaniesmake when preparing a n R & D t a x credit claim: 1 . N o t claiming under t h e correct scheme Thisisby f a r t h e most common mistake a n d c a n lead t o very significant sumsof money having t o b e repaid back t o HMRC! R & D t a x relief i s subdivided into t w o very different schemes, depending o n a large number o f factors. T h e SMEscheme i s available f o r small a n d medium sized companies, currently providing t a x relief o f u p t o 33.35%. T h e R & D Expenditure Credit (RDEC) i s available f o r large companieswith current t a x relief o f u p t o 10.53%.Most advisers know that HMRC’s definition o f a n SMEis t o have fewer than 5 0 0 employees a n d either a yearly turnover o f lessthan €100 million O R a balance sheet total o f under € 8 6 million. Whilstthere a r e changes t o both t h e S M E a n d RDEC rates o f t a x relief from April 2023 onwards, t o bring them much closer together, i t i s stillvitally important t o firstlyget t h e sizecriteria correct. Secondly, there a r e a number o f further tests t o determine whether a n R & D claim o r project should b e made under t h e SMEor RDECscheme which a r e often over-looked, including where t h e company: • i s a member o f a 51%group • hasan y linke d and/o r partne r enterprisesunde r t h e E C definitions • hasany private equity shareholdersand i t becomesa ventur e capita l compan y • i s i n receipt o f grant funding, which i s notified state a i d • i s incurring t h e qualifying expenditure i n carrying o n R & D activities a s a subcontractor • hasR&D expenditure which hasbeen met, directly o r indirectly, b y another person (including potentially customers) a n d s o i s “subsidised expenditure” .

There i s currently some disagreement between t h e t a x professionand HMRC o n what constitutes “subsidised expenditure”, meaning this needs t o b e reviewed o n a case-by-case basis. T h e SMEstatus i s lost i f a n y o n e o f t h e above points applies, a n d s o care needsto b e taken t o ensure t h e correct scheme isbeing claimed. 2 . Claiming consumables that a r e n o t qualifyin g expenditur e Everyone wants t o maximise t h e qualifying R & D expenditure i n their claimsand including t h e costsof consumable itemsthat are, f o r example, componentsof a prototype that isused i n testing a n d then scrapped hasalwaysbeen intended t o qualify. Likewise,an apportionment o f water, fuel a n d power t o t h e R & D activitieswill b e accepted b y HMRC. However , wher e a compan y sellso r otherwis e transfersownership o f items produced i n t h e course o f i t s R & D activity a s part o f i t s ordinary business,the cost o f consumable itemsthat form part o f those productsisexcluded from expenditure qualifying f o r relief. Usingthe example above, i f t h e prototype w a s sold t o a customer, even a t a discount o r gifted t o someone else a s a goodwill gesture, t h e costs o f t h e partscannot b e claimed asqualifying R & D expenditure. Thisisthe point that i s often missed b y other firms a n d their claims could successfully b e challenged b y HMRC. 3. No t gi ving H MRC de tail s o f y our competen t professional s Most firmsinclude some technical narrative o n t h e qualifying R & D projectsthat t h e company isclaiming a s qualifying f o r R & D t a x credits. However, w e s e e many other firms’ R & D t a x credit claimswhere they d o n o t give a n y detailsof t h e people leading t h e R & D projectsand their professional qualifications a n d industry experience. I n many cases, t h e competent professional will have BSc/MSc/PhDs i n their relevant areas o f expertise. This,together with details o f their number o f years o f industry experience a n d names o f previous blue-chip companiesin which they have worked, c a n help t o persuade HMRC o f their competence asexperience professionals undertaking qualifying R&D. T h e competent professional section i stherefore a valuable section t o o u r UHYR&D claims.

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