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In order to tackle the challenges that the world faces, it is going to be necessary to embrace innovation from a whole host of sectors.
The issue of approaching R&D tax relief claims from sectors that fall outside of HMRC’s typical scope is one that frequently arises and can lead to claims being rejected.
As farmers have recently reported feeling overlooked in terms of innovation, is it time for HMRC to expand their approach to assessing R&D tax relief claims?
Why do some innovators feel overlooked by HMRC?
It has recently been reported that 92 per cent of farmers feel that their sustainability progress has been overlooked.
However, it must be made clear that not every one of these will have been connected to a legitimate advance that would qualify for R&D tax relief.
Sustainability efforts may not involve the uncertainty required to make the work qualify, as it may have already been explored by other innovators.
Yet the point remains that some sectors are unfairly maligned by HMRC and this may cause genuine innovation to be overlooked.
Why are some sectors seemingly ignored by HMRC?
Despite not having a publicly available list of approved sectors to draw from, HMRC do seem to have a defined list that is used to assess R&D tax relief claims.
The OECD’s list of fields of science and technology can be a useful reference point, as this seems to align with the definitions provided by HMRC when judging what should be counted as R&D.
In this, some more niche sectors like agriculture are comfortably covered, even if HMRC do tend to still overlook them.
It is this that can pose a challenge for R&D work conducted in creative industries, where much of the work is likely to be discounted by default.
While new guidance did help mitigate some of this problem, the bias with which HMRC views the advances of different sectors is still prevalent.
How can overlooked sectors demonstrate valid R&D?
Just because some sectors have more of a struggled to get recognised than others does not mean that they should shy away from R&D tax relief claims where it is appropriate to submit them.
Instead, documenting the legitimate R&D work done and evidencing the ways in which it truly constitutes an advance in science and technology should be more of a focus.
The technical narrative can go some way to tackling this.
Enquiries are possible with all R&D tax relief claims, regardless of how valid they may be, and it is best to brace for an enquiry when submitting an R&D tax relief claim that centres on a niche sector.
The lack of publicly available knowledge of the types of sector considered by HMRC to be valid is a double-edged sword.
On the one hand, it means that most sectors at least stand a chance of having eligible work provided they meet the other criteria.
On the other hand, it makes it difficult to proactively prove that the work is unusual if the innovative business or accountant fails to recognise the sector as niche.
This is where seeking the support of an R&D tax consultant can come in handy.
We know which sectors HMRC are more likely to view with suspicion and can advise accordingly.
When a legitimate R&D tax relief claim is subject to an enquiry, we will defend the full eligible value of that claim.
Speak to our team today to ensure that innovation does not get overlooked.
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