HM Revenue and Customs (HMRC) have been endeavouring to increase compliance rates for R&D tax relief claims by introducing a series of measures to make claims harder to submit.
The latest addition to HMRC’s repertoire is an online checking tool where would-be claimants can check whether their R&D tax relief claims are eligible.
However, the tool might conversely cause an influx of ineligible claims, so it is imperative that the strengths and limitations of the service are well understood.
Why might HMRC’s R&D tool cause problems with compliance?
On the surface, HMRC’s R&D tool could be effective at increasing the awareness of what makes a valid R&D tax relief claim.
The tool works as a series of tick box questions, each of which comes with a brief overview of the necessary R&D tax relief guidelines that should inform the answer.
If someone is genuinely curious and open to learning more about the system, the tool could serve to present information on R&D tax relief in a more digestible way.
However, it is entirely possible to breeze through the tool, ticking ‘yes’ to every question without paying any heed to the information provided.
Doing so will still result in a bright green box confirming the eligibility of the project, although there is a note to suggest that making mistakes while ticking the boxes means the result might not be accurate.
The concern is that people may use the tool without fully understanding the process and guidelines and take the outcome as gospel.
It is entirely possible that someone believes they have done something innovative, but it does not meet the proper definition of R&D.
There is a concern that someone may go on to submit an ineligible claim without professional support after being emboldened by HMRC’s R&D tool.
Add in the ease with which LLMs can generate nonsensical technical narratives while plying false information about qualifying expenditure and it could be a disastrous combination.
Should HMRC’s R&D tool be avoided?
It is not necessary to entirely forgo the use of HMRC’s R&D tool, but it should be used with caution.
The tool does not replace the professional support of accountants or R&D tax consultants and any indication of eligibility gained from the tool does not translate to a valid claim.
In essence, that makes the tool limited in its capabilities, as the result is easily manipulated and cannot be taken too seriously.
However, the embedded information that frames each question may be the most valuable part of the tool, as it shows a step-by-step process of determining eligibility.
This might help prospective claimants understand the R&D tax relief process more and could help innovative businesses double-check that the work they do counts as R&D.
We would strongly advise anyone who uses the tool to also seek professional support and guidance to ensure that they have understood the criteria and that their project is valid for an R&D tax relief claim.
We are on hand to provide expert support for businesses and accountants looking to understand their eligibility for R&D tax relief claims.
