In the past accountants might have been comfortable dealing with the financial aspects of an R&D tax relief claim, but may have felt less qualified to assess the technical or scientific aspects of their clients’ claims.
Many accountants I have spoken to recently have left this aspect entirely to their clients, believing them to be the experts in their field. But now that HMRC’s rate of enquiry is increasing they find that the client can’t answer HMRC’s technical questions, and neither can they.
What is baseline in an R&D tax relief claim?
In order to show that R&D has occurred a company needs to demonstrate a scientific or technological advance to HMRC. Importantly this is an advance in the overall knowledge or capability in a field of science or technology, not just an advance in that company’s own knowledge or capability. A baseline defines what knowledge, state of art, and known solutions were publicly known at the start of any R&D project.
How to evidence a baseline and what are HMRC looking for?
First and foremost what HMRC don’t need is a sales pitch, buzzwords, or a good PR story. The language should reflect the scientific and technological subject matter. It can sometimes be easier to write a narrative that tells the client’s story, but if this doesn’t help HMRC answer their questions it is surplus to requirements.
Why a Google search may not be enough
HMRC do ask about a Google search, to see what is already out there. It’s a good start but it might not be enough to be exhaustive proof of what is already known in the industry.
Although patents are regarded as publicly available, they do represent a bigger challenge to navigate. Even if you’ve identified the relevant patents they can require an element of interpretation to understand how they are relevant (or not) to the R&D baseline for your client.
