As R&D tax consultants, we know that there are some ambitious businesses out there who are doing that are driving multiple eligible projects that qualify for R&D tax relief.
This is more likely to be true for larger businesses, R&D focused businesses, and those who have not claimed during their last two accounting periods.
Not every R&D project will need to have a detailed report compiled in every instance, so it is important to understand how HM Revenue and Customs expects multiple projects to be detailed.
When do R&D projects not need writing up?
For the most part, R&D projects need to be submitted with detailed reports accompanied by the Additional Information Form (AIF).
However, the need to write up all projects is only true if your client has three or fewer projects that qualify for R&D tax relief.
Where a business has undertaken between four and ten projects, not all of the projects need detailing.
In this instance, it is necessary to describe at least three projects with expenditure equating to at least 50 per cent of the overall R&D expenditure during the period.
Businesses that conduct 11 or more projects in the qualifying period must describe between three and ten projects that cover 50 per cent of the total qualifying R&D expenditure.
In the unlikely event that a business has done more than 11 projects and describing ten projects would not equate to 50 per cent of expenditure, then the requirement is that the ten projects with the highest qualifying expenditure are described.
If detailing these ten projects would lead to an unrepresentative sample of the R&D work conducted, it is possible to select a mix of projects that cover the breadth of activities undertaken or focus on a range of expenditure levels that mirrors the diversity of the R&D work.
How to choose which projects to describe?
While the qualifying expenditure of each project is the greatest determining factor in whether it should be described, it is worth thinking about the scope of the R&D that has taken place.
If your client is seeking innovations across multiple fields of science and technology, it does not make sense to limit the scope of their reports to just one field.
Showing a range of innovations can also help to minimise the chances of HMRC flagging projects that sound similar, even if they are different enough to be eligible.
Even if projects are not going to be described, it is still essential that they are well understood before any report is put together.
This is because their eligibility needs to be determined, and expenditure needs to be ascribed to them.
How important is it to understand the other projects?
Having notes on projects that were not the focus of the submission can be helpful if your client is targeted by the Mandatory Random Enquiry Programme (MREP).
The MREP may require more elaboration on other projects if HMRC seek to verify the eligibility of these projects and thus be certain that your client is entitled to the full R&D tax relief that has been claimed.
Being caught out would lead to penalties and invalidation of the entire R&D tax relief claim, as the expenditure would have been miscalculated.
The more projects that are being considered, the greater the chance that HMRC will want to understand them, as some businesses may try to sneak ineligible projects in and crowd them out with eligible ones.
The best way to support a client is to gather information on all the projects as though they were to be written up, and then determine which ones need to be described.
Our expert team of R&D tax consultants are always on hand to help maximise eligible R&D tax relief claims while ensuring compliance.
