Unsurprisingly, HMRC are turning up the heat on R&D tax relief claims, and what was once deemed a quick win by business owners, accountants, and agents are now becoming a much more considered approach to tax. There has always been a requirement to evidence and justify compliant activity but from April 2023, the requirement is to produce a technical report.
For GovGrant a technical report has always been the backbone of our service and the importance of a strong technical narrative cannot be understated. So what makes a good technical report?
Structure the answers so they are aligned with the questions
There are set questions that HMRC need to have answered and they want the answers to be easily identifiable when reviewing a report. Whilst it can sometimes be easier to write a narrative that tells the client’s story, if this doesn’t help HMRC understand which question is being addressed then it is more likely to cause confusion.
Don’t waffle and get straight to the technical point
There are plenty of red flags that will raise the eyebrow of HMRC and most of the time they come from buzzwords, filler words, or a sales pitch – all of which have no place in a good technical report. You need to remember this is a technical report so the challenges faced and the advancement being sought need to be scientific or technological and the words need to reflect that.
How to demonstrate the project baseline
It is critical for the report to include project focused activities and ringfencing activities this way helps to define a baseline. A baseline defines the knowledge, state of art, and known solutions at the start of the project. And this helps to demonstrate that the activities required to improve the state of art are R&D. It can sometimes be a great challenge to evidence a baseline but demonstrating what patents existed at that time can be an excellent reference point.
Appropriate and reasonable to costs
It is not true that the more you claim the longer the report needs to be, and vice versa, a small claim may need more than a small technical report. What is vital is that the report gives a comprehensive view of why that project happened and a sense of the effort needed to attempt to overcome the challenges. For example, getting a car to fly has some obvious challenges that are difficult to overcome. Whereas getting a piece of software to respond differently may take more effort to explain what the uncertainties were, it is not as readily understood.
The changes to the schemes shouldn’t put companies off claiming R&D tax relief, it is a key policy for the UK to invest in R&D and innovation. What this should do is make sure the support goes to the right businesses and policymakers can have confidence that they can continue to support and improve the scheme for genuine R&D activity.
