R&D claims getting rejected out of hand

[gtechrob]

We do a fair chunk of R&D - I employ a full time chemist and x2 lab assistants whose main responsibility is to develop new product (we manufacture car, boat and bicycle care products) and appraise performance of ours and our competitors products.

Long story cut short. We've claimed under the govt R&D tax relief scheme for going on for 4 years now with no problem.

Now HMRC have employed a new body called ISBC who, according to our very experienced accountants, are completely new to R&D claim evaluation and are rejecting pretty much all SME R&D claims outright. Wording on our very very long clearly copied and pasted letter concluded that our claim is "rejected in its entirety".

Luckily our accountants have some good contacts in HMRC and are in comms with them re ours and other claims.

Curious to know how everyone else's claims have fared. Granted there are some seriously dodgy claims being made but it does seem that claims are being dismissed out of hand and not being correctly evaluated by ISBC

 

[Porky]

Same issue on one of my companies, genuine R&D Claim but revenue playing silly buggers with it. In this case i have appointed a specialist firm to deal with it on a 20% fee, absolutely ridiculous. I expect ultimately it will get sorted but no guarantees. I find it annoying that they act in this way towards small coys, its hard enough to create innovation in the UK as it is.

Good luck to you hope yours works out in the end.

 

[IanSuth]

I was in a networking event this am with a guy who specialises in this. As far as I could tell on a pre agreed % of amounts they get you.

They are called Daniel James Tax but I only speak from the basis of that conversation not usage

Separately a few months back I was speaking to someone at the rugby club who was having to redo everything as previously agreed rebates were suddenly rejected and argued against - after a load of work they got a "sorry, mistake - you were entitled like you thought" but no compensation

 

[Ozzy]

have appointed a specialist firm to deal with it on a 20% fee

This does depend on what time anyone has available but I disagree with appointing these 'specialist firms' on a % return basis.
We do our R&D claims in-house after using a specialist firm, seeing what was involved, and decided to do the report and claim in-house only claiming what we would happily stand up and defend. My worry is that these firms would push the boundaries for every possible penny, as they are financially incentivised to do so. We never attempt to claim anything that isn't a genuine new invention, and as we had to write up the reports for the 'specialist' anyway and that was the bulk of the work I couldn't justify paying someone else to do this.

 

[cjd]

Another 'advantage' of Brexit apparently. Europe used to contribute to R&D rebates but no more. As a result HMRC is clamping down - that and the fact that they were receiving really ridiculous claims from pretty much everyone from restaurants claiming for their new menus and hairdressers for new hair designs. All caused by these rip-off percentage takers who disappear when HMRC investigate.

We've claimed R&D for 20 years and had an investigation last year (because of the above) - we passed with nothing to pay but it was a lot of work and a lot of worry.

From this year you have to justify your claim with a report, if you're going to claim it's best to get advice or at least read the regulation, R&D may be not what you think it is. Top tip, make sure you get insurance cover from your accounting in case you get a tax investigation - not just for R&D. That was a god-send for us and we negotiated it as part of their service..

 

[Porky]

This does depend on what time anyone has available but I disagree with appointing these 'specialist firms' on a % return basis.
We do our R&D claims in-house after using a specialist firm, seeing what was involved, and decided to do the report and claim in-house only claiming what we would happily stand up and defend. My worry is that these firms would push the boundaries for every possible penny, as they are financially incentivised to do so. We never attempt to claim anything that isn't a genuine new invention, and as we had to write up the reports for the 'specialist' anyway and that was the bulk of the work I couldn't justify paying someone else to do this.

Hi @Ozzy
I would tend to agree with you having completed the process on other businesses with the support of my local accountants however, in our case the accountants state that practically EVERY claim they submitted was knocked back by the revenue and moved to outsourcing to a no fee/win commission arrangement with a firm that specialise in R&D with a VERY high results record.

Whilst i respect the suggestion that "they may push the boundaries for every possible penny" in all honesty does the business claiming care less? At the end of the day they want the credit back, its legitimate, its genuine invention using your terminology, why should they have a battle on their hands to reclaim what is rightfully and legally their money?

Personally, i feel its an absolute disgrace that the revenue are treating genuine small innovative companies in this way, the revenue are quick enough to take money off you now everything is in real time. They should settle sharpish and not treat every business like they are criminals frankly.

 

[Newchodge]

Personally, i feel its an absolute disgrace that the revenue are treating genuine small innovative companies in this way, the revenue are quick enough to take money off you now everything is in real time. They should settle sharpish and not treat every business like they are criminals frankly.

While I have every stmpathy with genuine small innovative companies, how do you suggest they differentiate them from the criminals, without investigating?

 

[Porky]

Hi Cyndy,
What i'm hearing is just outright rejection in the first stance in practically every case. An element of common sense would be good and perhaps HMRC outsourcing the process to ISBC probably with the remit to reduce R&D claims is the route of the problem.

 

[Newchodge]

Hi Cyndy,
What i'm hearing is just outright rejection in the first stance in practically every case. An element of common sense would be good and perhaps HMRC outsourcing the process to ISBC probably with the remit to reduce R&D claims is the route of the problem.

Possibly, or to pur it another way: HMRC's funding being cut so much that they cannot afford to employ the professinals they have needed to assess claims properly, allowing many to go through without checking is the route of the problem.

 

[Mark T Jones]

I was in a networking event this am with a guy who specialises in this. As far as I could tell on a pre agreed % of amounts they get you.

They are called Daniel James Tax but I only speak from the basis of that conversation not usage

Separately a few months back I was speaking to someone at the rugby club who was having to redo everything as previously agreed rebates were suddenly rejected and argued against - after a load of work they got a "sorry, mistake - you were entitled like you thought" but no compensation

I've met about 100 of them (and still have them trying to pitch me on LinkedIn)

Some solid and sensible, some money-grabbing crooks - hence the current problem.

HMRC initially adopted a policy of 'pay out promptly and investigate later' - which was comprehensively (and predictably) abused.

Hence they have now apparently swung to the other end of the scale - reject everything unless that can create 100% compelling case.

 

[gtechrob]

ok thanks. sounds like a veritable show of excrement from HMRC. We use Evelyn who are excellent. They have poked their contact in HMRC on behalf of us and several of their other clients. One of which is a pure software development Co that also had their claim dismissed out of hand. Staggering how badly they are handling this.

 

[pentel]

A lot of people have been sucked into making very spurious R&D claims by specialist claim companies.

A reading of the hmrc website defines R&D as

To claim you need to explain how a project:

• looked for an advance in the field
• had to overcome the scientific or technological uncertainty
• tried to overcome the scientific or technological uncertainty
• could not be easily worked out by a professional in the field

I suspect a lot of claims will fall over on the last definition.

 

[IanSuth]

ok thanks. sounds like a veritable show of excrement from HMRC. We use Evelyn who are excellent. They have poked their contact in HMRC on behalf of us and several of their other clients. One of which is a pure software development Co that also had their claim dismissed out of hand. Staggering how badly they are handling this.

The one i was speaking to the guy at rugby about was to do with using a drug in oncology that had previously been used for something else unrelated. The knock back was because "it has already been approved as a drug" despite the fact that getting it through oncology trials and over the regulatory hurdles etc is obviously r&d spend". The annoying bit was the about face when pestered without any kind of recompense for the extra time/energy/bank interest etc.

 

[Porky]

Came off the phone from a contact earlier and the consensus is that they are indeed declining the vast majority of claims in the first instance. Hoping they go away on the rejection letter and don't pursue it any further. Absolutely ridiculous.

@Mark T Jones is spot on with his comment "reject everything unless that can create 100% compelling case"

In my one business we are having to build a detailed technical report using R & D consultants just to satisfy the criteria. A total overkill at more time and cost to the business.

So not only is it a real challenge for tech plays to secure capital in these markets, they now have to battle to get the R&D tax adjustment that is rightfully theirs. Talk about trying to stifle any innovation.

Also, as a small side point: also discovered today looking into this that from April 24 they also hardened the rules that exclude you claiming for any R&D carried out by contractors overseas. So if you use a skilled candidate in say Bangalore unless they are on UK PAYE they wont qualify either.

 

[Newchodge]

Came off the phone from a contact earlier and the consensus is that they are indeed declining the vast majority of claims in the first instance. Hoping they go away on the rejection letter and don't pursue it any further. Absolutely ridiculous.

@Mark T Jones is spot on with his comment "reject everything unless that can create 100% compelling case"

In my one business we are having to build a detailed technical report using R & D consultants just to satisfy the criteria. A total overkill at more time and cost to the business.

So not only is it a real challenge for tech plays to secure capital in these markets, they now have to battle to get the R&D tax adjustment that is rightfully theirs. Talk about trying to stifle any innovation.

Also, as a small side point: also discovered today looking into this that from April 24 they also hardened the rules that exclude you claiming for any R&D carried out by contractors overseas. So if you use a skilled candidate in say Bangalore unless they are on UK PAYE they wont qualify either.

Have you seen this thread? https://www.ukbusinessforums.co.uk/threads/r-d-tax-credit.419075/

 

[Eric Feltin]

Unfortunately what you describe is a common occurrence. Whereas HMRC used to query less than 1% of claims, they are now looking into more than 20%, and the inquiry rate is even higher for claims (1) in industries that are not known for R&D, and (2) that used particular specialist agents.

Additional enforcement was necessary as there was fraud; however, there is some recognition that (1) the shotgun nature of enforcement has been detrimental, and (2) that HMRC doesn’t have the technical skills to actually assess the technical merit.

On 24 April 2024, Mr Harra (first permanent secretary at HMRC) said to the House of Commons Treasury Subcommittee: “My people are tax inspectors. They are not software engineers or rocket scientists and they meet a vast range of claims in areas in which they do not have expertise. Our approach to compliance is to ask the claimant to demonstrate that they have thought through why their claim qualifies for relief.”

This then is the solution, although it may take time. You (the claimant) have to keep making your case. You have to demonstrate that you have a sound basis for your claim. Rather than merely asserting that you have been innovative, emphasise your process for detailing your claim.

At the 15 Dec 2023 meeting of the Research and Development Communication Forum, HMRC discussed some of the information that they would appreciate seeing (but don’t routinely ask for): “details of claim methodology for example how the qualifying expenditure was arrived at from the company records, how consumable costs were identified, the process undertaken to identify qualifying projects and to identify where the R&D starts and ends, details of the competent professionals etc. Diagrams and photos can also be included.”

As for retaining specialist advisors, I am not sure that they will be of much help. At the end of the day:

• it is your claim
• you are responsible for your own tax affairs
• you are the ones who did the innovation (and thus understand it), and
• you are the ones who determine the expenditure associated with that innovation

If HMRC is questioning whether you made a scientific or technological advance, I would recommend searching Google Scholar to demonstrate that your innovation is at the forefront.

If HMRC is questioning your figures, I would recommend detailing the guidelines and process you use to (as much as possible) objectively identify the expenditure claimed.

I wish you all the best,

Eric Feltin
CEO at Claridian.co.uk

P.S. I have tried to include links for those quotes but can't. If you want the links to see the full context, please email me.

 

[cjd]

In my one business we are having to build a detailed technical report using R & D consultants just to satisfy the criteria. A total overkill at more time and cost to the business.

I've been through the mill on this so perhaps you could expect me to be on your side but I'm not. We have to satisfy ourselves first that we are eligible to make a claim by really understanding the criteria - that might require specialist advice. If the process is overkill for you then don't make the claim. It's not supposed to be a free handout - though that was what it has become.

So not only is it a real challenge for tech plays to secure capital in these markets, they now have to battle to get the R&D tax adjustment that is rightfully theirs. Talk about trying to stifle any innovation.

Innovation is down to the company, we do it because it gives us an edge. Getting a tax rebate for doing it is great but it's not a right. If we meet the criteria then we get the rebate but that now requires us to prove it. That seems fair to me. What isn't fair is what's been happening for 20 years or so where pretty much anyone was getting the rebate regardless of merit.

Also, as a small side point: also discovered today looking into this that from April 24 they also hardened the rules that exclude you claiming for any R&D carried out by contractors overseas. So if you use a skilled candidate in say Bangalore unless they are on UK PAYE they wont qualify either.

Why would you think that's unfair? The UK government wants to give a tax advantage to UK companies for work done by UK residents in the UK. Regardless of the fact that it does affect my company, I agree with that.

 

[pentel]

Innovation is down to the company, we do it because it gives us an edge. Getting a tax rebate for doing it is great but it's not a right. If we meet the criteria then we get the rebate but that now requires us to prove it. That seems fair to me. What isn't fair is what's been happening for 20 years or so where pretty much anyone was getting the rebate regardless of merit.

The political capital of allowing this to happen is the government can show that the UK is very R&D focused and is being well supported in this. Unfortunately a lot of the money spent has been a waste.

 

[gtechrob]

jesus wept.

so our accountants called through to their v. senior contact at HMRC. That person's PA told them that nothing happening until after the election...... Seriously WTF!!! When did politics interfere with day to day operations of HMRC?

Coincidentally our appeal against x2 years being dismissed out of hand is 5th July so we are going to request an extension.

What a complete s*&t show! The R&D team at our accountants are getting more than a bit worried about their employment prospects.

 

[NickGrogan]

Seriously WTF!!! When did politics interfere with day to day operations of HMRC?

Forever, you dont think government departments are non political do you?

 

[gtechrob]

Forever, you dont think government departments are non political do you?

not on a day by day basis like this - this message was a shock to our accountants who would be very well versed in this.

of course govt policy dictates what goes on on a macro basis but this level of micro managing is unusual.

 

[Newchodge]

so our accountants called through to their v. senior contact at HMRC. That person's PA told them that nothing happening until after the election...... Seriously WTF!!! When did politics interfere with day to day operations of HMRC?

Coincidentally our appeal against x2 years being dismissed out of hand is 5th July so we are going to request an extension.

I find that very confusing. You are both very angry that nothing will happen before 5 July and unhappy that your appeal is to be heard as early as 5 July?

 

[cjd]

Anyone wanting to claim for R&D from now, needs to read and understand this

Meaning of research and development for tax purposes: guidelines

www.gov.uk

 

[gtechrob]

I find that very confusing. You are both very angry that nothing will happen before 5 July and unhappy that your appeal is to be heard as early as 5 July?

as someone offering law advice I would have thought you would be able to follow the thread a little better

said high level contact should be able to throw light at the current snafu but not until after the election and our appeal needs to be submitted on election day. ergo we want to delay submitting appeal to understand the mechanics of why everything is getting rejected out of hand and maybe, at best case scenario, get assistance with ours and our accountant's other cases.

 

[Newchodge]

as someone offering law advice I would have thought you would be able to follow the thread a little better

said high level contact should be able to throw light at the current snafu but not until after the election and our appeal needs to be submitted on election day. ergo we want to delay submitting appeal to understand the mechanics of why everything is getting rejected out of hand.

I, personally, find the whole concept of 'high level contact' highly offensive.

Ergo, in your response, makes it more comprehensible.

 

[IanSuth]

i think the level of your contact may be the issue

The higher up they get the more their individual contribution/input can be seen as politically sensitive

Purdah prevents senior civil servants making any announcements about anything controversial that might be seen by anyone as favouring or harming a political party during the election.

So for example a civil servant saying "there was a change in policy to try and reduce R&D tax claims to save money/increase tax take" could become a news story so no senior one is going to risk that.

 

[Daybooks]

On 24 April 2024, Mr Harra (first permanent secretary at HMRC) said to the House of Commons Treasury Subcommittee: “They are not software engineers or rocket scientists and they meet a vast range of claims in areas in which they do not have expertise.

Probably the only worthwhile thing Jim has ever said. It does explain a lot and far more than perhaps intended.

 

[gtechrob]

consensus is that this is a blocking move to weed out the BS claims such as people claiming a new hair style being offered or a change in menu constitutes R&D.

No apologies for the level of offense caused to you @Newchodge by our accountants having a contact at HMRC. Just want a result.

 

[gtechrob]

update.

so it seems HMRC have been taken to a tribunal by a claimant and the tribunal has found in favour of the claimant in the respect that HMRC were wrong to dismiss their claim out of hand and should have had their staff engage with the claimants staff to assess the claim.

time to play hard ball with HMRC

 

[Grantica R&D]

jesus wept.

so our accountants called through to their v. senior contact at HMRC. That person's PA told them that nothing happening until after the election...... Seriously WTF!!! When did politics interfere with day to day operations of HMRC?

Coincidentally our appeal against x2 years being dismissed out of hand is 5th July so we are going to request an extension.

What a complete s*&t show! The R&D team at our accountants are getting more than a bit worried about their employment prospects.

having a partner that will defend an inquiry is key! we do it at no extra cost to our services.

 

[Newchodge]

update.

so it seems HMRC have been taken to a tribunal by a claimant and the tribunal has found in favour of the claimant in the respect that HMRC were wrong to dismiss their claim out of hand and should have had their staff engage with the claimants staff to assess the claim.

time to play hard ball with HMRC

Do you have the case reference, please?

 

[gtechrob]

bluming sharepoint - try tribunal.pdf

 

[Newchodge]

update.

so it seems HMRC have been taken to a tribunal by a claimant and the tribunal has found in favour of the claimant in the respect that HMRC were wrong to dismiss their claim out of hand and should have had their staff engage with the claimants staff to assess the claim.

time to play hard ball with HMRC

I have just read the judgment. HMRC clearly did not dismiss the claim out of hand. The tribunal's suggestion is over the initial appraoch of the company "Ideally, GOL would have produced a single document in which it marshalled all its scientific/technological evidence, including evidence from a competent professional (which is clearly highly desirable, whether or not it is strictly necessary), and HMRC would then have replied to that document with details of its own scientific analysis and evidence. "

I would suggest that playing hardball with HMRC may be counter-productive.

 

[gtechrob]

please note my motivation on here is to help others - not to drum up business. I, like others, are dumfounded by how HMRC have handled this recently.

For ref this is the pertinent passage from our reply to them referencing the tribunal.






Given we have provided substantive information to demonstrate that eligible R&D is taking place, as per Get Onbord Ltd (in Liquidation) v Revenue and Customs [2024] UKFTT 617 (TC), the evidential burden has shifted to HMRC to provide the technological and scientific rationale for rejecting the evidence put forward in the initial claim report and subsequent responses. As per our comments above, HMRC has not provided this detail.

Furthermore, Judge Baldwin states “We consider that these proceedings would have been much more straightforward (and possibly could have been avoided) if, at an early stage, both parties had “put their scientific cards face up on the table”. As per our previous correspondence, we would welcome the opportunity to meet with HMRC and their technical experts to have a detailed discussion on the projects and why they qualify for R&D tax relief. We can arrange for XXX's competent professionals to be present and would be happy to show HMRC around XXX's premises so they can see the laboratory and the various formulations being developed first hand.

 

[Newchodge]

please note my motivation on here is to help others - not to drum up business. I, like others, are dumfounded by how HMRC have handled this recently.

For ref this is the pertinent passage from our reply to them referencing the tribunal.






Given we have provided substantive information to demonstrate that eligible R&D is taking place, as per Get Onbord Ltd (in Liquidation) v Revenue and Customs [2024] UKFTT 617 (TC), the evidential burden has shifted to HMRC to provide the technological and scientific rationale for rejecting the evidence put forward in the initial claim report and subsequent responses. As per our comments above, HMRC has not provided this detail.

Furthermore, Judge Baldwin states “We consider that these proceedings would have been much more straightforward (and possibly could have been avoided) if, at an early stage, both parties had “put their scientific cards face up on the table”. As per our previous correspondence, we would welcome the opportunity to meet with HMRC and their technical experts to have a detailed discussion on the projects and why they qualify for R&D tax relief. We can arrange for XXX's competent professionals to be present and would be happy to show HMRC around XXX's premises so they can see the laboratory and the various formulations being developed first hand.

Do you mean the bit between "We consider to on the table" is from the tribunal judgment? The rest looks like evidence presented.

 

[Porky]

Fully with you @gtechrob in need to play hard ball.

I do not agree with what looks like a policy of reject every claim in the first instance unless it’s from a select panel of accountants such as KPMG, PWC, Markel etc etc etc - sorry but a business involved in R&D should not have to be wasting time in this way to justify a valid claim.

@Newchodge Cyndy, let’s get some perspective here: this is not some free money gift, these are businesses funding/investing in R&D to advance society, they are still paying obscene levels of tax here as it is, just hopefully offsetting some of the cost which can be reinvested to further accelerate the R&D objectives.

Whilst businesses in R&D are not doing it for tax breaks, it does help in keeping costs down, the government should be backing innovation not trying to strangle it.

 

[Newchodge]

Fully with you @gtechrob in need to play hard ball.

I do not agree with what looks like a policy of reject every claim in the first instance unless it’s from a select panel of accountants such as KPMG, PWC, Markel etc etc etc - sorry but a business involved in R&D should not have to be wasting time in this way to justify a valid claim.

@Newchodge Cyndy, let’s get some perspective here: this is not some free money gift, these are businesses funding/investing in R&D to advance society, they are still paying obscene levels of tax here as it is, just hopefully offsetting some of the cost which can be reinvested to further accelerate the R&D objectives.

Whilst businesses in R&D are not doing it for tax breaks, it does help in keeping costs down, the government should be backing innovation not trying to strangle it.

I have no problem whatsoever with businesses of whatever size receiving tax relief when they are entitled to it. I do not think that which accountant they use should be a factor in deciding whether they are entitled to it. And I see nothing whatsoever wrong in HMRC checking the entitlement.

 

[Grantica R&D]

It looks like in the October budget, R&D tax credits may be made harder to claim for

So many fraudulent claims have been made for small amounts, it looks like the criteria will be changed and SME claims will be scrutinised more. The fact small claims are now under the spotlight because of the likes of Green Jellyfish and others, it's not surprising really

 

[gtechrob]

Boom!! Nearlly £50k fees in, HMRC have finally relented. Mind blowing that we had to jump through these hoops.

 

[Frank the Insurance guy]

Boom!! Nearlly £50k fees in, HMRC have finally relented. Mind blowing that we had to jump through these hoops.

Great result - just a shame it had to take so much time and effort!