Can I reuse a previous claim? What’s the harm?
There is a strong chance that if you’ve been continuously innovating and advancing the field of science and technology in recent years then you’ve successfully filed for Research and Development (R&D) tax credits. There is also a chance that you’ve got to grips with the scheme relevant to you and have a good idea of how best to provide the relevant information to HMRC.
With that, comes the possibility that you’ve thought about streamlining your submission by reusing the information from a previous claim. There several reasons why this is a perilous route to take and, as our submissions always feature both a technical report and cost analysis, our exploration will be split into two parts.
As you may already be aware, the key to successfully claiming for R&D Tax Credits is to concisely demonstrate how your development work has “solved technical uncertainty” in the field of science or technology. In layman’s terms, “solving technical uncertainty” is when you start with the baseline knowledge and iterate, building and contributing to it to advance the knowledge itself. For instance, with AngularJS 1.0 – the baseline could be that nobody knew how to overcome the SEO challenge. They overcame this and solved technical uncertainty by dynamically creating pages on the fly when Google spider came round to index pages. Whilst the subject of the research and development work may remain similar or consistent over the years, the baseline knowledge in the field of science or technology will inevitably be in a state of flux; for every R&D project there needs to be tangible uncertainty for it to fall under the scope:
“Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, isn’t readily available or deducible by a competent professional working in the field.”
If you are unable to detail additional uncertainties or advancements for the new financial period, it would be interpreted that the work is either not being conducted by an experienced professional or the advancement being made isn’t entirely tangible, both of which suggest the development falls outside the scope of the R&D scheme.
It’s also important to remember that while projects can span multiple years, the uncertainties faced and solutions implemented to overcome them must fall within the financial year in question. The project starts when the work to resolve the uncertainty starts and ends once that work has ceased, either through completion or termination of the project.
Reusing information that falls outside the claim period is an inaccurate reflection of your development and HMRC could rule that reasonable care had not been taken when producing your submission, resulting in an HMRC enquiry. These enquiries can be costly in both time and money, with penalties of up to 100% of tax lost being issued. Although they’re rarely of this magnitude, a simple cost benefit analysis would suggest that the hour or so spent articulating your latest development work is time well spent.
Financial cost analysis:
Given the significance of an accurate technical report, it’s no surprise that qualifying your expenditure correctly is equally important – not only to HMRC but to the health of your business.
Having been a startup ourselves, we know that a job title is just that, a title. Being flexible in your role is essential to the success of early stage companies and this should be reflected in your claim. For example, reusing previous resource apportionments will not accurately reflect a developer moving from a routine project to exploring the technical feasibility of engineering blockchain cryptography into archaic banking infrastructures.
Similar to this is the transition your company may undergo from an SME to a large company (or vice versa). It is essential that you avoid reusing a claim in ordinary times, but if your company has undergone this transition, there are vastly different ways to perform the calculations. If you reuse a claim, it is almost certain that the apportionments for employees, consumables, subcontractors etc will be incorrect and would raise flags at HMRC if you tried to file them.
Change isn’t just confined to your claim and company’s status; HMRC frequently revises the R&D Tax Credits manual (the CIRD). These revisions can span any part of the scheme from more favourable enhancement and surrender rates to the disqualifying of previously qualifiable expenditure.
For more information on claiming R&D Tax Credits, either through the SME or RDEC schemes, please get in touch and a government funding specialist will chat through your funding options with you.