Research & Development: An update
New R&D targeted advance assurance scheme
HMRC have introduced a targeted advance assurance service for Research and Development (R&D) tax relief claims. The service, which is a pilot, aims to provide Small and Medium-sized Enterprises (SMEs) with clarity on complex or high-risk areas before a claim is made.
The new targeted scheme is open to any SME wishing to obtain HMRC’s assurance in any of the following areas:
- Whether the project meets the definition of R&D for tax purposes.
- Whether overseas expenditure qualifies for relief.
- Whether the company can claim R&D relief where work is contracted by one company to another.
- Whether the company qualifies for exemption from the PAYE and National Insurance contributions cap.
The scheme will run alongside the existing full claim advance assurance service, which is only available to first-time claimants.
R&D claims at the first tier tribunal
A recent First Tier Tribunal case (Beer Express Ltd v HMRC) demonstrates the pitfalls involved in overreliance on R&D advisers. The FTT’s task was to answer a straightforward question: had Beer Express proved that its projects met the BEIS Guidelines for R&D?
Under those guidelines, qualifying R&D must aim to achieve an advance in science or technology by resolving genuine technological uncertainty – not merely improving a company’s own processes.
The Tribunal found there was no clear explanation of the technological baseline, no defined advance, and no identified uncertainties for any of the projects.
Instead, the supporting reports were described as vague and unconvincing, offering little more than high-level descriptions.
Equally damaging was the absence of input from a “competent professional” – someone with the technical expertise to explain why the work qualified. Beer Express’s director was found to be honest and credible, but lacked the detailed technical knowledge required.
When HMRC challenged the claims, the adviser who had prepared them had disappeared, leaving Beer Express to defend a case it could not fully explain.
The FTT dismissed the appeal in full, concluding that Beer Express had failed to discharge the burden of proof required to access R&D relief.
In recent years, HMRC have vastly increased their scrutiny of R&D claims, so it is important to use advisers who are competent in this area.
