Page 10 - HMRC changes APR23

SPOTLIGHT – R&D TAX RELIEF CHANGES AND THE IMPACT ON YOU
06. Is your subcontracted R&D putting you at risk of an HMRC enquiry?
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are you clear on HMRC’s interpretation of the rules?
The increase in the number of enquiries is partly due to HMRC’s increased crackdown on non-compliance and their efforts to drive provision of accurate information in tax relief claims and fraud.
One area of contention is the interpretation of the rules related to claiming R&D tax relief in subcontract scenarios. Over the last two years, many high-profile cases have highlighted HMRC’s growing confidence in asserting its own interpretation of these rules. In
the case of Quinn v HMRC 2021, HMRC considered the R&D to be subsidised by the commissioning company, as the claimant did the work while completing a commissioned contract. HMRC concluded that the company making the claim would need to claim through the RDEC scheme for subsidised work and the SME scheme for non-subsidised elements.
In order to ensure that they stay on the right side of HMRC’s interpretation of the rules and reduce the likelihood of an enquiry, it is critical that claiming companies are clear on a number of points:
1. Are the technical challenges intrinsic and critical to the completion of a contract or could the contract be completed without addressing the technical challenges? Meaning the eligible R&D activity is beyond the remit of the contract.
2. Similarly, did the financial compensation for the contract include a payment specifically for any R&D work packages carried out or was R&D expenditure at the discretion of the subcontractor and paid for from its own resources?
The answers to these questions give a strong indication as to where both the technical and financial risk might lie within a contract and, consequently, which party has the strongest claim over a potential R&D tax relief claim.