Sage LakhaniHead of Consulting
Having started her career with PwC London, Sage has previously held positions at two boutique tax consultancies working with entrepreneurs and growing businesses. She is also a qualified Chartered Tax Adviser.
There is currently no set format for providing technical information in support of your claim to HMRC but there are some key things you should aim to include.
An R&D claim should satisfactorily demonstrate your knowledge of the guidelines, the boundaries of your R&D (where it started and ended), and how your projects align with the definitions of R&D for tax purposes.
There is currently no prescribed format or standardized template for supplying the information to HMRC, and you should keep in mind that the information in support of your claim should be prepared in such a way as to be clear and informative, rather than persuasive.
What you should include in your Technical Narrative
1) The names, titles, and credentials of those people involved in your projects (and assessing their eligibility) – these individuals are known as the ‘competent professionals’;
2) A clear description of the advance in science or technology (the innovation, extension, or improvement) that your company has sought;
3) A description of the limitations and uncertainties that you faced (specifically in relation to the existing knowledge/capabilities which were already available);
4) A description of your process, and the key components and resources that were consulted, used, modified, or changed; and
5) The milestones and outcomes that you achieved (this can also include failures – R&D projects needn’t have been ultimately successful to qualify)
A Technical Narrative for R&D
In addition to preparing and providing your qualifying expenditure and a supporting financial methodology, it is a good idea to submit a representative description of your R&D work, including some sample projects – often known as case-studies. This allows HMRC to see that you have correctly assessed your R&D projects and their boundaries, as well as demonstrating an understanding of the R&D guidelines.
Sometimes R&D projects will span more than one financial period; you are expected to carefully consider your qualifying expenditure and R&D projects each time you submit a claim. Reproducing prior material or failing to produce sufficient technical information is likely to result in an HMRC enquiry.
Your project descriptions, or case-studies, should make reference to the R&D guidelines wherever they are relevant. And you should prepare these write-ups with sufficient detail to support your claim, while taking care to explain the projects in plain English so an Inspector can understand the nature of your R&D without further questioning.
There is no standardized template or format for presenting the information to HMRC. But HMRC need to understand the key complexities and/or limitations in a project, and get a clear sense of why the solutions you developed were not readily available or deducible at the outset. It is a good idea to benchmark your innovation against comparable solutions and what already existed at the outset.
The Technical Report and Your Business
Any important commercial context and relevant scene-setting to your R&D work in a given period can also be helpful in support of your claim. In addition to the financial information and the representative project descriptions, you might want to include details of how your company operates day-to-day (including how, and whether, it undertakes work for clients), and how it has come to select its R&D projects.