Asking the right questions: a renewed focus around R&D tax incentives for 2023

Following the recent immense scrutiny around research and development (R&D) tax credits, it is a crucial time to start questioning if you are being advised correctly on claims ahead of the impending changes in April 2023.

While your appointed adviser may prepare and submit the R&D tax credits claim to HMRC on your behalf, you are still liable for the contents of the submission and reporting accurate information. Therefore, you need to ensure your company is asking the right questions about any R&D tax credits claims being submitted.

Are you privy to the technical contents of your R&D tax credits claim?

During investigative work with new clients, who have previously made R&D tax credit claims with other various providers, we have discovered that the full R&D technical report is sometimes withheld from the client.

It is imperative that you are aware of the entire contents of this report in case it is ever questioned by the HMRC. If you do get to see the report, it is important to ensure you read it fully and agree with everything in it. If you are not sure if the contents detail a true reflection of your work or does not appear to be a qualifying or valid R&D activity claim, we highly recommend you question it or seek a second opinion.

The R&D landscape has changed dramatically over the last 10 years and awareness is now at an all-time high due to many fraudulent claims being able to bypass the system during periods of high volume. As a result, HMRC is now stepping up its review process and has actively increased the size of its team with the inclusion of many additional R&D tax associates to monitor and reduce misuse of the scheme.

Furthermore, the HMRC has confirmed that it has already issued between 3,500-4,000 letters directly to company directors claiming R&D tax credits to provide links for guidance and support. The communication recommends that directors review any of the company’s past claims to make amendments where necessary before action is taken.

Do you have trusted and experienced R&D advisers working with you to ensure the accuracy of your claims?

While historic claims may have been paid out successfully, the HMRC has stated that they are unable to review claims efficiently and accurately while meeting pay-out deadlines, leading to pay-outs for fraudulent claims. This means that some claims may have been paid by HMRC even though they did not actually meet the R&D guidelines and could still be open to a costly enquiry in the future.

The technical report will now become compulsory and is your opportunity to provide HMRC with all the details that it needs to understand your R&D tax credit claim. Effectively, it is a narrative detailing your company, your R&D project(s), and information about the activities carried out in resolving or attempting to resolve R&D.

When looking at qualifying costs, further changes are coming into place from April 2023 regarding what will be claimable. Any R&D tax relief claims submitted will need to be supported by a costing schedule which clearly allocates any qualifying costs to each eligible development project. A specialist R&D tax adviser will make sure your costing schedule is completed accurately and that your claim is valid against the current HMRC guidelines.

Are you paying a fair fee for the level of service you receive from your R&D tax credits adviser?

Within the R&D industry, there is much concern over the level of fees being charged by some advisers for processing R&D claims, with a high percentage fee seen by some as a catalyst for the inflation of claims. As a result, it is important to ensure you review the advice and service you are receiving from your chosen adviser and question what they are telling you.

If you are filing the claim without advice, are you checking if internal staff members or accountants are up to date with the latest guidance and scheme changes to ensure you have the right to claim? With the number of enquiries for R&D tax credits increasing, it is essential that you are confident in the accuracy of your claim submissions.