Shenal Wijetunge, a specialist in R&D tax relief and Partner at DSW Tax Advisory, highlights the importance of maintaining real-time documentation for companies preparing and defending R&D tax relief claims.
With extensive experience navigating HMRC enquiries, particularly in recent years as scrutiny of R&D claims has reached unprecedented levels, Shenal stresses that tribunal cases consistently demonstrate the value of thorough, contemporaneous records.
This practice is especially critical when HMRC reviews claims during compliance checks, enquiries, or proceedings at the First Tier Tax Tribunal (FTT).
Why Real-Time Documentation Is Essential
While descriptions and recollections can provide a good starting point for a claim, they are often insufficient to withstand detailed HMRC enquiries. To submit a robust claim, tangible evidence of the R&D activities undertaken is critical. HMRC’s Guidelines for Compliance in R&D Tax Relief (GfC3) emphasise that claims are more likely to be accurate and defensible when companies recognise and document qualifying R&D activities at the time they occur.
There is no set format for presenting evidence, but claims must be supported by data that demonstrates the advances sought, the uncertainties tackled, and the steps taken to resolve them. Specifically, HMRC recommends that companies:
- Document the scientific or technological advances they are pursuing clearly.
- Identify and outline the uncertainties they are addressing and their approach to resolving them.
- Seek input from a competent professional and explain why the solution wasn’t readily deducible.
The Risks of Retrospective Justifications
Several recent tribunal cases illustrate the risks of trying to justify R&D claims after the fact without sufficient documentation. Common reasons for rejected claims include:
- Lack of Evidence: Contractor expenditure that is not directly linked to qualifying R&D activities.
- Inconsistent Narratives: R&D activity descriptions that do not adequately demonstrate technological advancements.
- Poor Record-Keeping: Missing documentation related to contracts, materials, or staffing costs, often due to the absence of a time-recording system.
Insights from Successful Claims
In contrast, claims that succeed at tribunal often include comprehensive, credible evidence. For example, claims upheld recently included directors providing detailed testimony about their innovative processes, successfully addressing HMRC’s concerns.
How to Prepare a Strong R&D Tax Relief Claim
While possible, winning at tribunal is not ideal. The process is both time-consuming and costly. The best strategy is to avoid enquiries by preparing and submitting a claim that complies with HMRC’s guidelines.
At DSW Tax Advisory, we work with clients to:
- Prepare accurate computations and technical narratives.
- Submit claims that adhere to HMRC’s standards.
- Manage all communications with HMRC, including enquiries and appeals if necessary.
Our expertise ensures that claims are compliant and optimised to secure the maximum benefit for your business.
Final Thoughts
The outcome of an R&D tax relief claim often depends on the strength of the evidence provided and the professionals’ expertise. Maintaining contemporaneous records that align with HMRC’s guidelines is critical for a successful claim while minimising the risk of enquiries.
Documenting R&D activities in real-time is far simpler than trying to recreate them months or years later during an investigation. If you’re looking to maximise your R&D tax relief entitlement and avoid unnecessary disputes, contact us for a free initial consultation.
Let’s work together to ensure your claims are both compliant and successful!
