All companies claiming R&D Tax Relief must now now share detailed technical data about their projects with HMRC via the additional information form (AIF). Dr Razia Chowdhry, PhD, Senior R&D Technical Consultant and Team Lead, shares her insider tips for making sure yours masses muster with HMRC’s inspectors.
It is a seismic development for R&D Tax Relief: Starting from 8 August 2023, all companies must submit detailed technical information about their development work via the new additional information form.
Previously, only companies claiming R&D Tax Relief under the Research and Development Expenditure Credit (RDEC) scheme were required to submit a technical report or ‘technical narrative’.
But now, all businesses – including those claiming just a few thousand pounds of relief – will need to describe what advance they hoped to achieve, the obstacles they encountered, and the scientific or technological baseline they were looking to build upon.
Those that don’t submit an AIF are having their claims instantly rejected.
Problems ahead for R&D Tax claimants
To prove their projects qualify for relief, claimants must discuss their development work in terms of the R&D Tax Relief scheme’s eligibility criteria. Businesses that are not familiar with these terms – advances, baselines, uncertainties and so on – will struggle to convince HMRC’s inspectors to process their claim.
If a tax inspector isn’t sure whether a project qualifies for relief, they are liable to launch a compliance check or ‘enquiry’. Compliance checks are investigations designed to determine whether a company’s R&D qualifies for tax relief. Enquiries often take many months to reach a resolution, delaying a company’s funding considerably.
The risk of enquiry has grown significantly in recent years, as part of a wider HMRC initiative to identify non-compliant claims. HMRC now investigates 20% of submissions, up from around 1% previously.
Even companies with some experience writing technical reports face an increased risk of being enquired.
The new requirements are very prescriptive about what information companies need to provide. In many cases, using old templates, even those that have served companies well in the past, will not suffice.
"Now, all businesses, including those claiming just a few thousand pounds of relief, will need to provide information about the advance they hoped to achieve, the obstacles they encountered, and the scientific or technological baseline they were looking to build upon."
The best way to avoid an enquiry is by working with a experienced, technically-literate R&D Tax Relief consultancy like GrantTree.
Of course, some companies will choose to go it alone. Or to work with a provider without a great deal of technical knowledge. To help those companies avoid an enquiry, and access their allowances of R&D Tax Relief, I’ve shared a few tips on completing the AIF and effectively explaining complex R&D to HMRC’s inspectors.
If you have any questions about these tips or are looking for some help on your upcoming claim, just get in touch. Our R&D Tax Relief team is always happy to help.
Tip 1: Read the requirements
My first piece of advice is to make sure you understand the AIF.
As we cover in our detailed blog explaining the new requirements, you need to answer six questions about some or all of your research and development projects.
The six questions are as follows.
- What is the main field of science or technology?
- What was the baseline level of science or technology that you planned to advance?
- What advance in that scientific or technical knowledge did you aim to achieve?
- What scientific or technological uncertainties did you face?
- How did your project seek to overcome these uncertainties?
- Which scheme you’re applying to, and how much you’re looking to claim
Once you’ve written your report, go back and make sure you’ve answered each of these questions.
Go through and tick them off with a pen if it helps. Missing just one could buy you a one-way ticket to an enquiry.
Tip 2: Get on top of the terminology
The six questions in the requirements are lifted from the government’s definition of R&D for tax purposes, which is set out in the guidelines published by the Department for Business, Energy and Industrial Strategy (BEIS).
The guidelines contain several concepts which delineate ‘routine’, i.e. non-qualifying development work from the projects the government is willing to support with tax reductions and cash credits. These concept include:
- Baselines
- Advances
- Uncertainties
If you work in science or technology, you may be familiar with these terms. But be careful. The terms have specific definitions in the context of R&D Tax Relief.
So, don’t assume that your understanding of, for example, ‘baseline’ matches the government’s interpretation. It’s far better to assume they are different.
The best way to understand what these phrases mean is by closely studying the BEIS guidelines. You can also look at our blog on the topic.
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Tip 3: Avoid jargon, academese, and buzzwords (where possible)
When writing your technical report, always keep in mind two things:
- Who you are writing for
- What they are going to do with the information you give them
Your audience is HMRC’s tax inspectors, most of which do not have a technical background. As Jim Harra, the Permanent Secretary at HMRC, explained during a recent House of Commons Treasury Committee hearing, “My people are tax inspectors. They are not software engineers or rocket scientists and they meet a vast range of claims in areas in which they do not have expertise”.
Tax inspectors are charged with taking information from your AIF, comparing it against BEIS’ guidelines, and determining whether they qualify for relief. You need to complete your AIF in a way that helps them do this.
Clarity is crucial. The easier your inspector finds it to apply the guidelines, the likelier it is your submission will be accepted. If you leave room for doubt and uncertainty, you’re more likely to end up with an enquiry.
"Clarity is crucial. The easier your inspector finds it to apply the guidelines, the likelier it is your submission will be accepted."
One of the best ways to achieve clarity is to avoid things like jargon, acronyms, and academese. If you need to use a technical term, explain it. “For this project, we hired a synchrotron (a kind of particle accelerator…)”.
It’s normal for highly technical people to lose sight of which terms are in common use.
If that’s you, or if you’re generally worried that your technical report is inaccessible, I recommend having a non-technical person, preferably someone within your company, such as a member of the finance or marketing team, review your narrative before submission.
They can point out anything that isn’t clear.
Tip 4: Collect technical data throughout the year
This is more of a longer-term tip, but it’s still helpful: collect the technical data for your report throughout your financial year, not just towards the end when you’re getting ready to file.
Collecting the data throughout the year achieves a few things.
First, it gives you a better sense of the trajectory of your company’s projects, making it easier to identify obstacles and explore how your development team sought to overcome them.
Second, it helps you capture necessary detail that might have been forgotten by the time you’re actually looking to file.
Third, it reduces the chance that your technical team will be all-hands-to-the-pump with a critical project and, therefore, unavailable to provide the data you need on your claim.
We generally recommend collecting data once a quarter. Building a rhythm is particularly helpful in cultivating engagement, so get the invitations out well in advance.
Protect your reputation with GrantTree
Those are my main tips for creating an accessible, well-structured technical report.
If you have any questions, would like an expert to review a report you’ve put together, or want experienced support on your next claim, GrantTree is here to help.
As one of the country’s leading R&D Tax providers, we’ve filed and defended more than 2,000 claims and unlocked more than £400 million in R&D Tax Relief.
Over the last 14 years, my fellow technical consultants and I have vast experience preparing compliant reports that demonstrate our clients’ eligibility to HMRC’s inspectors.
Indeed, Thomas J Vosper, founder of GrantTree client Aisle 3, said our technical reports are “so thorough that, apart from sending them to HMRC, I don’t let them out of the building. That’s how well they demonstrated what makes Aisle 3 so special and our groundbreaking achievements in AI development.”
If you want help demonstrating what makes your technology special and why it qualifies for R&D Tax Relief, just get in touch.
