One key feature of an R&D claim is that it must be centred on a project and cannot be ad hoc work undertaken by a company. While this makes complete sense, it is extremely rare for a project to align with a company’s accounting period, often straddling two, three or even four years. This means that the project can be included in several R&D claims, but how exactly is the best way to navigate that? Can you copy and paste each project across all years, or does each project year need its own distinct narrative? In reality, it can be a mixture of both. The best way to tackle this will be to break the technical write-up down into the four key areas on the AIF form: the advancement sought, the baseline, the technological uncertainties, and how the advancement was achieved.
Advancement sought
This is the key advancement your R&D project aims to achieve. Whilst this may not change much as the R&D project progresses, it is definitely worth revisiting to see whether any additional constraints or factors have influenced this goal.
For example, if the project sought ‘the development of a new façade build-up using under-explored materials that can be used in a harsh coastal environment’, after the first year of testing different materials, these might be known. In this case, the advancement sought can be amended to ‘the development of a new façade build-up for a harsh coastal environment using under-explored materials, such as mycelium and hemp, where their performance under these conditions is unknown’.
Therefore, whilst this element ultimately needs to remain the same (or else it would constitute a new R&D project with its own write-up in the technical report), this section should evolve throughout the project’s lifecycle.
Baseline
The baseline of knowledge concerns all existing knowledge, publications, and skills currently used within the industry. If this is done comprehensively in your report, it will also include any case studies, named examples, and scientific literature to show the gap in knowledge in your specific area.
The crucial thing to remember here is that each accounting period should have its own distinct baseline. Not only is the industry knowledge likely to be ever-changing, with new advancements and ideas published over the previous year, but the baseline from one period to the next should also include the company’s learnings from the years before. Therefore, to maintain accuracy, there is no point just copying the same baseline from one year to the next because by the time you’re using it for a fourth year in a row, it will be woefully out of date.
Technical uncertainty
It’s always preached that ‘communication is a two-way street, ’ but that doesn’t mean that you need to do any of the heavy lifting for your R&D claim – your adviser should bear most of the burden. A competent R&D adviser should not only be able to seamlessly liaise with your accountant to finalise submission of the R&D claim (or even submit the claim themselves), but should have no problem at all liaising and communicating with HMRC on your behalf. This is especially relevant should you find yourself in an HMRC compliance check. If the adviser wants HMRC to liaise with you, instead of them, and isn’t prepared to make it known that they are your representative (through headed paper on their communications, for example), it’s probably best to start looking elsewhere. In these circumstances, it is their job to represent you and act as the mediatory expert between you and HMRC, able to talk ‘both languages’ (both tax and technical) and translate them to one another. This should be the bare minimum, and if they’re hesitant, that should be a huge red flag.
Advancement
This final section is the actual work undertaken to resolve the uncertainties. Out of all the sections covered, this one is least likely to have any ‘copy and paste’ material, as the likelihood of trialling one solution to overcome uncertainties for a period of over a year is minimal. If it hasn’t worked for so long, most competent professionals would switch it up and try something new.
Some elements may continue, such as testing that began in one period but ended in the next; however, this section is where most of the crucial new developments occur. If they are the same across several years, HMRC are likely to argue that no progress has been made and the claim is void.
So, what actually is the harm?
While there are elements that can be reused from previous reports, it is clear that to paint an accurate picture of not only the work done in the accounting period but also the state of the industry and the challenges faced, a new report needs to be produced for each period.
The main risk when reusing technical narratives is that they may be subject to an HMRC compliance check. These aren’t limited to a single accounting period – they can cover several at once. Therefore, if your compliance check covers three periods and they are all identical, how can HMRC see the evolution of the R&D projects? How will you answer their questions about the work done and the project timelines for each period? The answer: not very easily.
To safeguard yourself and protect your claims, the best approach to minimise risk is to create a new, separate write-up for each period. This may take more time in the long run, but it will definitely take less time and cause less stress than answering questions in a compliance check.
