In May 2020 the case of AHK Recruitment v HMRC finally came to a close.
This case has big implications in the world of Research and Development (R&D) Tax Credits. In this case the Tribunal upheld the decision from HMRC that the R&D was not eligible for tax credits, but why? The case came down to a simple premise, could AHK Recruitment prove that what they did counted as R&D?
In order to do this we need to follow some important principles.
1 – Does the R&D specialist provide a detailed report?
In the case of AHK Recruitment, their specialists did create a report. However, it did not have any of the detail needed.
When HMRC stated “what [we] require is an explanation of the advances he sought in the IT system and the uncertainties he encountered”, the only response they got back was that the project, “required the resolution of technical uncertainties”. This total lack of detail is clearly not good enough. Yes, the company provided a narrative for the report saying what sort of work AHK Recruitment do, but it had no detail about the work in this tax claim.
When submitting a tax claim the burden of proof is always on you, not HMRC. It is also important to not just fill a page with jargon, this might sound impressive, but HMRC will see right through this if you don’t have the supporting detail. HMRC have even started asking their IT about certain claims where they might have specialist knowledge. As such, always make sure you are dealing with an experienced team who pride themselves on the level of detail that goes into their accompanying reports.
2 – Does the work actually qualify for tax relief?
It is vital for the R&D team to understand the work that has been done. If they don’t, then they may try to claim for work that doesn’t qualify, and not claim for work that does.
In the AHK Recruitment case this was especially important. The work done involved human behavior and as the R&D tax credits don’t cover “science works in the arts, humanities and social sciences”, it was vital that the team of specialists understand exactly what the work was, and what it wasn’t. In conflating the specific work undertaken with the overall work done by the company the specialists steered HMRC away from tax relief thanks to trying to claim for work that doesn’t qualify.
Even during the tribunal, a new report was made by the company trying to introduce a new technical uncertainty. When asked why it hadn’t been introduced earlier, the response was that the previous people working on the report “didn’t understand the project properly”. This is a company that clearly isn’t prepared when producing the reports for its clients.
3 – Evidence is key!
No matter who does the R&D claim, it is vital to have supporting evidence. Is their summary, the tribunal stated, “we find it remarkable that the Appellant did not provide evidence from someone contemporaneously involved in the project, or who had conducted a revue of the Appellant’s records”. This shows that having the evidence to back up your claim is vital, not only for the team working on the claim, but also to show HMRC exactly why you are entitled to the tax credits. Using vague terms like “resolution of technical uncertainties” without showing what they are will only weaken your case for the tax credits.
This appeal started in March 2016, and didn’t end until May 2020. That is a lot of time and money spent because these three rules weren’t followed.
Here at Tax Expert, we pride ourselves on our work. Our team of specialists have a 100% success rate, and know R&D inside out. We will assess your eligibility from the start, and avoid the need for a lengthy tribunal by getting the right result for you.