Navigating HMRC’s new guidelines for compliance (GfC) in R&D tax relief

The introduction of HMRC’s Guidelines for Compliance (GfC) marks a pivotal shift in the landscape of Research and Development (R&D) tax relief. For many years, there has been a lack of guidance and, therefore, understanding of identifying R&D for tax purposes. GfC marks a step in the right direction; the documents published are a crucial toolkit to help claimants navigate the complexities of R&D tax claims.

While many R&D tax credit providers follow similar guidelines based on the DSIT (essentially the rule book for R&D tax relief), it’s fantastic to have more clarity on how HMRC interprets the rules for claiming R&D tax relief. In the face of challenges like non-compliance and errors in claims, these guidelines emerge as crucial guidance.
That’s why at EmpowerRD, we have thoroughly analysed the 6 documents in the Guidelines for Compliance (GfC) to provide you with an easily understandable overview.

The goals of the new HMRC R&D guidance

HMRC’s newly introduced R&D guidelines, known as the GfC, are designed to simplify complex areas of tax law and address common misunderstandings and errors. These guidelines rely on the interpretation of the Department for Science, Innovation, and Technology (DSIT) guidelines, which serve as the foundation for defining R&D for tax purposes.

The initial section of the guidelines for compliance outlines its primary objectives:

1. Clarifying HMRC’s Expectations: Providing a clear understanding of the R&D activities and claims that HMRC expects, ensuring alignment with tax law requirements.
2. Recognition of Competent Professionals: Guiding companies in identifying and leveraging qualified professionals who can accurately assess the merits of R&D activities.
3. Assessment of R&D eligibility: Assisting companies in determining whether their work qualifies as R&D, including identifying advancements, understanding uncertainties, and defining project boundaries.
4. Evidence requirements for claims: Outline the type of evidence that HMRC expects to support an R&D claim, ensuring companies provide sufficient and relevant documentation.

While these guidelines offer substantial assistance in crafting R&D tax relief claims, they do not replace the underlying tax legislation. Understanding the legislative rules for R&D tax relief remains crucial for submitting effective and compliant claims.

Claimant expectations

Here, the guidelines lay out a roadmap for claimants, detailing the steps required to prepare and submit an R&D tax relief claim. This involves identifying projects that genuinely seek new knowledge or capabilities in science or technology, ensuring these projects are aligned with qualifying fields, and adequately substantiating their claims.

The emphasis is on the thoroughness of documentation, from the conception of the project to its execution, highlighting the necessity for clarity and precision in demonstrating how a project meets the R&D criteria.

Competent professional: The backbone of valid claims

This section underscores the pivotal role of a competent professional in the R&D tax relief claim process. It details the qualifications and experience necessary for someone to be considered competent in assessing and validating the scientific or technological merits of a project. This professional’s input is critical in determining whether a project genuinely involves R&D as per HMRC’s standards. The guidance here is instrumental in helping businesses understand who qualifies as a competent professional and how their expertise should be integrated into the claims process.

Qualifying projects and activities

The focus shifts to distinguishing qualifying R&D activities from routine commercial tasks. This part of the guidelines clarifies what constitutes a project aimed at achieving an advance in science or technology, as opposed to regular business development activities. It delineates the boundaries of R&D, providing clarity on which activities can be included in the claim and which cannot. This distinction is vital for businesses to accurately identify and claim only the activities that genuinely qualify as R&D under HMRC’s guidelines.

Proactive planning and documentation

In this segment, the guidelines emphasise the importance of proactive planning and thorough documentation of R&D projects. It advises businesses to start identifying potential R&D activities early in the project lifecycle and to maintain comprehensive records of every stage of the project. This proactive approach is aimed at ensuring that all qualifying activities are accurately captured and documented, which is essential for a successful claim and for avoiding issues during compliance checks.

Error correction and further information

The final part of the guidelines provides a pathway for businesses to rectify any errors in previous R&D claims. It outlines the process for amending tax returns and the conditions under which such amendments can be made. Additionally, this section serves as a resource hub, directing businesses to further HMRC guidance and support for R&D tax relief claims. This includes the necessary steps to follow when encountering uncertainties in past claims and where to seek additional help.

The practical implications for businesses

The GfC3 necessitates a proactive and informed approach from businesses and advisors. Understanding the nuances of these guidelines is key to successful R&D tax relief claims. Businesses are encouraged to engage with tax experts and utilise the detailed examples provided in the guidelines to align their claims accurately with HMRC’s expectations.

A significant challenge lies in the consistent application of these guidelines across diverse business sectors. Continuous engagement and feedback between HMRC and stakeholders are vital for refining and effectively implementing these guidelines.

HMRC’s GfC guidelines represent a significant stride towards simplifying R&D tax relief processes. While they bring clarity and structure to R&D claims, businesses must stay informed and adaptable to navigate this evolving terrain successfully. With these guidelines, HMRC not only aims to reduce errors and non-compliance but also to empower businesses in their innovative endeavours.

Resources on the recent changes to R&D tax relief:

There have been a lot of changes over the past few years. To help you further navigate these changes effectively, here is a list of the most relevant guides and blogs:

1. Merging of the R&D tax relief scheme – What you need to know
2. Impact of the Autumn Statement 2023 on R&D tax relief
3. R&D tax relief reforms in 2023
4. Additional Information Form: Everything you need to know