# Let’s get fiscal – How to understand R&D Tax Claim Eligibility
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-11-16
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: Unlock the Potential with In-House R&D Tax Claims
Meta Description: Stay ahead in the competitive industry by offering R&D tax services to clients--unlock additional revenue streams and become a trusted advisor!
URL: https://financedigest.com/lets-get-fiscal-how-to-understand-rd-tax-claim-eligibilityhtml

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_![Mike Dean, Managing Director, WhisperClaims](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/553-1736814851843-compressed.jpg)_

_Accountancy firms are increasingly recognising the significant potential of providing their clients with an in-house R&D tax claims service. Not only does it offer an additional revenue stream at a time when margins for compliance services are being eroded, but it is a service clients are actively looking for from someone they consider a trusted advisor._

_With the rumoured complexity of the claims process – and with HMRC clamping down on risky and potentially rogue claims –  it is understandable that some firms may continue to be daunted by the thought of embarking down this route. However, as **Mike Dean,** Managing Director,_ [_WhisperClaims_](https://www.whisperclaims.co.uk/) _, explains, understanding your clients’ eligibility (whether you’re an accountancy firm or a specialist consultancy) is a straightforward process, as long as you break it down into three simple steps._

**HMRC Eligibility**

Before firms can start to review their client (and/or prospect) base for potential R&C tax claimants, it’s important to understand the key criteria HMRC stipulates.

**1) The** [work is in an area of science or technology](https://www.financedigest.com/working-with-both-human-ai-and-graph-technology-to-combat-money-laundering.html "Working with Both ‘Human’ AI and Graph Technology to Combat Money Laundering")

This is the most basic criteria for eligibility—the work must be being carried out in an area of science or technology. If you [can’t relate your client’s work to one or more areas of science or technology](https://www.financedigest.com/you-cant-get-faster-than-that-spring-statement-update-delivered-digitally-as-it-happens-with-app-driven-technology.html "‘You Can’t Get Faster Than That’ – Spring Statement Update Delivered Digitally As It Happens with App-driven technology"), it’s not eligible. It’s also important to note that research carried out in an area of social science isn’t eligible.

**2) The work is structured as a project**

HMRC defines an R&D project as a “number of activities conducted to a method or plans in order to achieve an [advance](https://www.financedigest.com/the-bicycle-brake-components-market-to-be-exalted-with-advancements-in-technology-at-a-cagr-of-7-between-2020-2030-2.html "The Bicycle Brake Components Market To Be Exalted With Advancements In Technology At A CAGR Of 7% Between 2020-2030") in science or technology”. They also state that a project “ _may be part of a larger commercial project_”. So, what does this mean for your client and their tax claim? Essentially, they must have planned their work and have set out to achieve an advance, rather than just doing day to day work and stumbling across it.

**3) The work seeks to make an** [advance in science or technology](https://www.financedigest.com/the-bicycle-brake-components-market-to-be-exalted-with-advancements-in-technology-at-a-cagr-of-7-between-2020-2030.html "The Bicycle Brake Components Market To Be Exalted With Advancements In Technology At A CAGR Of 7% Between 2020-2030")

So, what is an advance in science or technology? It’s as simple as it sounds—the outcome of the project represents an increase in overall knowledge, however small, in an area of science or technology. However, applying this to the [work done by a company](https://www.financedigest.com/alone-together-how-to-maintain-a-positive-company-culture-while-working-remotely.html "Alone together: How to maintain a positive company culture while working remotely") can be more complicated. HMRC lists four areas of activity in which a company might seek to make an advance and are therefore [eligible for R&D tax](https://www.financedigest.com/eu-us-working-on-deal-to-make-ev-minerals-eligible-for-tax-credits-eu-official.html "EU, US working on deal to make EV minerals eligible for tax credits -EU official") relief:

- _Work that seeks to extend overall knowledge in a field of science or technology;_
- Work that seeks to create a process, material, device, product or [service](https://www.financedigest.com/financial-services-technology-development-in-2023.html "Financial Services technology development in 2023") which incorporates an increase in overall knowledge or capability in a field of science or technology;
- Work that seeks to make an improvement to an [existing process](https://www.financedigest.com/solvency-ii-pushing-existing-systems-and-processes-harder-is-not-enough-for-compliance.html "Solvency II: pushing existing systems and processes harder is not enough for compliance") through scientific or technological change;
- Work that seeks to duplicate an existing material, device, product or service in an [improved way](https://www.financedigest.com/5-ways-to-improve-your-financial-literacy.html "5 Ways to Improve Your Financial Literacy") using science or technology.

**4) The [company encountered technological](https://www.financedigest.com/kelda-technology-selected-as-one-of-thetop-30-cleantech-companies-in-the-world.html "Kelda Technology selected as one of thetop 30 cleantech companies in the world") uncertainty during the project**

Simply put, a project has technological uncertainty if your client was unsure at the outset [whether it was technically possible to achieve the desired end](https://www.financedigest.com/graphic-chip-price-drop-raises-questions-on-whether-end-of-shortage-is-in-sight.html "Graphic chip price drop raises questions on whether end of shortage is in sight") result. This usually involves some level of both commercial and [financial risk](https://www.financedigest.com/financial-risks-of-climate-change-overplayed-senior-hsbc-banker-says.html "Financial risks of climate change overplayed, senior HSBC banker says"), and experienced staff scratching their heads!

**5) The [company used competent](https://www.financedigest.com/how-can-financial-services-companies-compete-more-effectively-in-times-of-uncertainty.html "How can Financial Services Companies compete more effectively in times of uncertainty?") professionals in the area of science or technology to carry out the work**

This is as straightforward as it sounds—HMRC wants to be sure that the project was challenging for people with qualifications and [experience in the area of science or technology](https://www.financedigest.com/how-is-modern-technology-shaping-our-in-store-experience.html "How Is Modern Technology Shaping Our In Store Experience?")!

With knowledge of these key criterias, the first step in establishing a claims review service is to undertake an eligibility review.

**Step 1: Review the client base**

There are three distinct categories of companies that a [firm needs to consider](https://www.financedigest.com/pizza-firm-dp-eurasia-considers-divestment-of-russian-business.html "Pizza firm DP Eurasia considers divestment of Russian business") – and each involve quite distinct ways of identifying eligibility:

- _Clients and prospects already claiming R&D [tax](https://www.financedigest.com/adding-revenue-through-rd-tax-relief-service-2.html "Adding Revenue through R&D Tax Relief Service") relief;_
- Clients and prospects that have claimed in the past, but are not currently claiming;
- Clients and prospects that haven’t claimed before.

Clients that are currently claiming are just that: companies that have made a claim for a recent [financial year](https://www.financedigest.com/what-financial-institutions-will-be-like-in-10-years.html "What Financial Institutions Will Be Like In 10 Years"), and for whom the most recent claim year is still available. This is by far the easiest category to assess for eligibility. The main issues to think about here are:

- _Who prepared their most recent claim? Your company, or a third-party?_
- If the claim was prepared by a third-party, are you happy with the eligibility of the claim?
- Was the recent work claimed for ongoing, or a one-off?

For companies who have claimed in the past, but are not currently claiming, it is important to understand why. In some cases, companies will know that they are not undertaking eligible R&D; in others, they may feel that previous claims were too small to justify the work involved in preparing the claim (note: automated R&D tax claims software can help here). It may be that there have been [changes in the company structure or management](https://www.financedigest.com/dispute-management-mindset-changing-the-disputes-game.html "Dispute Management Mindset: Changing the disputes game"), and making a claim for R&D tax relief has dropped off their radar. However, it can also be the case that a company had a bad experience with a third-party provider during their last claim.

In general, once you’ve identified which of your clients fall into this group, it’s a fairly simple process to assess whether they’re likely to be eligible. Having claimed in the past, these companies are also likely to have some understanding of the types of work that they can claim for, and so should be able to work with you to ascertain whether they’ve undertaken any of that type of work more recently.

The final category to [consider covers clients that have never claimed R&D tax](https://www.financedigest.com/3-options-to-consider-when-you-owe-the-irs-back-taxes.html "3 Options to Consider When You Owe The IRS Back Taxes") relief, along with prospective clients for whom you don’t hold information about their R&D claim history. Assessing these clients for eligibility isn’t easy, but there are ways to use information you already hold to make it a lot easier. The aim of this analysis is to [enable you to focus your efforts on the clients](https://www.financedigest.com/iris-acquisition-enables-accountants-to-add-greater-value-to-their-clients.html "IRIS acquisition enables accountants to add greater value to their clients") most likely to be able to make a claim for R&D tax relief.

[Ways to achieve this initial analysis include](https://www.financedigest.com/3-ways-to-safeguard-and-include-women-in-construction.html "3 ways to safeguard and include women in construction") SIC (standard industrial classification) code segmentation (how likely it is that a company operating in that sector would be carrying out eligible R&D?); identifying indicators of R&D in annual accounts, such as grants received, large subcontractor costs, increase in raw materials spending, and costs linked to patent applications.

**Step 2: Tackling obvious and less obvious cases**

Obvious R&D cases will typically tick most, or all of HMRC’s eligibility criteria, e.g. they operate in a technical sector; employ technical staff; have costs attributed to R&D in their accounts; have made successful R&D claims in the past; or are a technical start-up.

However, companies with large R&D [costs and obvious eligibility will have found themselves regularly targeted](https://www.financedigest.com/dutch-telecom-kpn-locks-in-2023-targets-helped-by-cost-controls.html "Dutch telecom KPN locks in 2023 targets helped by cost controls") by third party R&D consultancies, potentially leading to R&D sales ‘fatigue’. The key here is to emphasise how your role as a [trusted advisor](https://www.financedigest.com/exact-launches-practice-management-solution-to-help-transform-accountants-into-trusted-business-advisors.html "Exact launches Practice Management solution to help transform accountants into trusted business advisors") can provide them with a more tailored and appropriate service than third parties, whether this is through your fee structure or the way you work with them to prepare the claim.

A less obvious R&D case will usually tick one or two of the boxes described above, but it may be difficult to make a definite decision about their eligibility without [talking to the company’s management](https://www.financedigest.com/exclusive-allianz-in-talks-with-banks-for-china-asset-management-venture-sources.html "Exclusive-Allianz in talks with banks for China asset management venture -sources") team. It’s also important to manage the client’s expectations—you [don’t want to lead a company to believe](https://www.financedigest.com/1-in-3-adults-dont-believe-school-education-prepared-them-for-adult-life.html "1 in 3 adults don’t believe school education prepared them for adult life") that they’ll be able to claim R&D tax relief before establishing eligibility.

However, again, your position as the company’s accountant can be incredibly valuable. You’re already in regular contact with the [client and will be able to ask questions about R&D without having to sell services](https://www.financedigest.com/bny-mellon-strengthens-support-for-treasury-services-clients-in-germany-with-appointment-of-gungor-taner.html "BNY MELLON STRENGTHENS SUPPORT FOR TREASURY SERVICES CLIENTS IN GERMANY WITH APPOINTMENT OF GÜNGÖR TANER") upfront.

**Step 3: Assess Risk**

In terms of R&D tax relief claims, the eligibility of a claim and the risk of the claim being investigated by HMRC are not directly related. In fact, the risk of a claim being investigated by HMRC has a lot more to do with certain other factors than eligibility, which is why it is important to think about the risk of submitting a claim alongside assessing its overall eligibility.

However, if you’re not convinced about the eligibility of a claim, you should never submit the claim to HMRC, regardless of how low you feel the risk is!

The purpose of the risk assessment is to allow you to proactively mitigate the risks inherent in any eligible claim, and to prepare yourself and the client for HMRC’s response in the case of high-risk claims.

The most common risk factors that may lead to HMRC investigating a claim include: company sector; ratio of claim size to company turnover; company age; grants; complications from company structure; and the amount of technical narrative included within the project details.

Again, having access to dedicated R&D [tax claims software that includes a risk](https://www.financedigest.com/britains-tax-take-risks-blowing-green-energy-off-target.html "Britain’s tax take risks blowing green energy off target") assessment, can be helpful in supporting you and your clients in this final step. Even better if the software is backed by an expert R&D tax claims support team who can steer you in the right direction and give you confidence that your claim is robust before submission to HMRC.

**Conclusion**

Understanding R&D tax claims eligibility and providing clients with a trusted R&D tax [service is readily achievable and doesn’t need](https://www.financedigest.com/top-5-seo-services-you-need-to-succeed-in-2022.html "Top 5 SEO Services You Need To Succeed In 2022") to be a complex or costly undertaking. With companies of all sizes actively seeking support from their accountants to fulfil this role, it is a potential [revenue stream](https://www.financedigest.com/innovation-is-the-path-to-revenue-how-financial-organisations-can-open-up-alternative-revenue-streams.html "Innovation is the path to revenue: How financial organisations can open up alternative revenue streams") and value-added service that cannot be ignored, and with the right support isn’t as challenging to deliver as you might have imagined.


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