Within R&D tax credit frameworks, there exist varying degrees of guidance, each with distinct purposes.
Firstly, there’s the ‘Meaning of Research & Development for Tax Purposes: guidelines’ which goes beyond mere suggestions. It’s the legal foundation embedded in Section 1006 of the Income Tax Act 2007. These guidelines constitute the backbone of R&D relief claims, transcending the typical notion of guidance.
Then, there’s the CIRD Manual (Corporate Intangibles Research and Development), which offers an extensive overview of R&D tax reliefs. However, it’s positioned as guidance though is the internal manual on how HMRC is supposed to ork, particularly referencing the relevant detailed parts of the aforementioned GUIDANCE/LAW. Nevertheless, HMRC seems to selectively follow these guidelines, especially concerning aspects like determining R&D project facts when questioning competent professionals.
In October 2023, HMRC released additional guidance in the form of ‘Guidelines for Compliance’ (GfC). Explicitly labelled as guidelines, they also present themselves as Promotional Material. Targeted at tax agents and advisors, these documents cover diverse topics, including Tax, Research & Development for tax purposes, VAT apportionment, and PAYE settlement agreement calculations.
Why the need for more guidelines? The R&D GfC are intended to expand on HMRC’s view on the guidelines on the meaning of R&D for tax purposes (that’s the initial guidelines above). Essentially, these GfC guidelines aim to aid in identifying common errors in claims—like determining the commencement and cessation of R&D, its nature, and who qualifies as competent. Should any Compliance Checks or inquiries contradict ANY of these guidelines or their interpretations, it could lead to some interesting scenarios.
It is hoped that this helps all, HMRC, claimant companies, and tax advisors navigate the complexities of making an R&D claim.
Article written by Medilink Midlands Patron TBAT Innovation Ltd.