This article considers the various areas that may require specialist assistance when preparing a Research & Development claim. We look at the  questions that are frequently raised during the claim  preparation: What is the overall approach, understanding the role of your technical or scientific employees in preparing the claim, understanding how this links to the actual number that is submitted as the claim and dealing with HMRC.

1. Approach assessment - you may have many projects and are unsure of where to begin. Some of them may be either wholly or partially qualifying for R&D tax relief. There are frequently many questions at this stage:

• How are you going to prepare the claim
  
• Should you sample some of the projects  rather than assessing eligibility on each individually?
  
• If so, which ones?
• How will you determine which parts of any given project are eligible?
• How will HMRC respond to this?
  
• How do you calculate the qualifying costs per project?
• How many interviews is it necessary to carry out with the technology staff?
  
• What is the level of documentation that you will need to support the claim
  
• Should you ask to meet HMRC?

This 'design' stage is key to a well-prepared robust claim and essential to success on larger claims. Once you have a process in-place then unless there is good reason not to, it can be followed from year-to-year. However, it is key to ensure that the right decisions are made when establishing this process as well as if you choose to optimise it in subsequent years (e.g. reducing the amount of supporting documentation).

2. Project Management -Preparing the claim should be treated with the same rigour as any other tax compliance activity. There is a deadline which is 1 year after the company's year-end that must be met. Additionally, the claim process requires the input of technical staff and it is important that the claim preparation does not interfere with their day-to-day activities.  There will be training and/or technical interviews to schedule,  timesheet  and other cost data to extract. You may decide to prepare the claim in-house but need assistance with the project management to ensure that your R&D claim is delivered within budget, at high quality and in good time.

3. Technology Expertise

A fundamental part of the UK Research & Development tax relief regime is that it relies on the people who are actually doing the work to determine if it is eligible and if so, the extent. However, establishing the linkage between the work of the scientists and engineers and the tax rules, requires knowledge of both.You may like assistance in training for your staff, so that they understand how the DTI Guidelines on R&D apply to their particular circumstances and guidance for them on assessing the level of eligibility. You may be very comfortable with calculating the claim amounts but would like the supporting documentation for your R&D claim professionally prepared.

4. Costing Expertise

One of the main areas to consider is whether you have a reliable time sheet system. By reliable, we mean does everyone whose time is in an R&D claim use it and in a consistent manner. You may require assistance in determining the optimal way of using your time sheet recording system or other project tracking data. For example, should you use task codes to build your claim and what is the best way of doing this.

There are a number of other areas to consider - in understanding what is included in staff costs (frequently ineligible costs) and how to link these costs back to the R&D projects you are claiming for. In preparing the claim there are also other areas such as contractors, work funded by SME's and attributable overheads to consider.

4. Claim Defense

You prepare and submit your claim to HMRC. Instead of getting a repayment back you receive an enquiry letter with lots of questions about your R&D claim. Some of the questions may require factual information, other parts may seem to ask you for information you have already sent. The letter may reject the claim in its entirety or it could suggest a meeting with an HMRC inspector. At this point it is important to assess the strengths and weaknesses of your claim, and consider how best to respond. Scientific or technical staff should be briefed in advance of an HMRC meeting to ensure that they are adequately prepared.

Example questions in an HMRC enquiry letter may involve:

• The Process: How was the claim compiled, what was the involvement of your technical specialists in preparing the claim, how was a sample selected
  
• The Technology or Science: Why does this project represent a technological advance, what were the technological uncertainties being overcome
• The Costs: How do the costs map back so that only eligible activities on eligible projects are included

In each case, the best approach is a measured response, either by correspondence or in person, so providing the inspector with the information that they need to be satisfied with your claim.