Everything you need to know about HMRC’s R&D eligibility tool

HMRC has launched a new R&D eligibility tool for potential claimants to check if a project includes activities that qualify as research and development for tax purposes. The new tool is grounded in the DSIT Guidelines (the guidelines) and GfC3 and offers potential claimants another mechanism to help explore their eligibility for R&D tax credits.

While useful as an easy-to-use interactive version of the definition of R&D for tax purposes, it is no replacement for seeking the input of a professional adviser.

What is the HMRC R&D tool?

The tool offers a new mechanism for helping to establish whether your project might qualify for R&D tax credits. In conjunction with the established guidelines, it is a useful starting point if you are new to R&D tax relief and want to get a sense of whether a project might qualify. It gives HMRC’s view on whether a project involves R&D for tax purposes based on the information provided.

It draws heavily on the established R&D guidance and emphasises the need to involve a competent professional (CP) when answering the questions. A CP is the person within your business who assesses which of your activities count as R&D. They are a critical part of establishing eligibility, as recent Tax Tribunal cases have confirmed.

How does it work?

Aside from one question relating to the project name that requires data input, the R&D checker tool comprises a series of “yes” or “no” questions, with radio buttons.

Our own testing indicates that if positive answers are provided, then a “yes” result is returned. If, however, a “no” (or “cannot confirm”) response is entered, then the tool will indicate that there isn’t enough information to show that there was a qualifying R&D project. This includes points that appear either of secondary importance or do not appear in the guidelines. For instance, whether you’re able to identify the work done, or the date on which each uncertainty was resolved.

What are the R&D tool’s limitations?

Establishing whether a project qualifies as R&D is a nuanced process, so confining it to a basic “yes” or “no” exercise can feel simplistic. It would be easy to envisage a CP replying “no” to one or more of these questions, even though they have a qualifying R&D project. As a result, there will inevitably be false negatives.

The tool has likely also been designed to err on the side of caution (rather than to allow false positives). This makes it even more important, particularly for those new to R&D claims, that professional advice is sought to determine qualifying R&D. Returning a negative or inconclusive result is likely to be common and doesn’t necessarily mean that the project won’t qualify. As HMRC itself notes in the supporting text: “If you disagree with the outcome of the tool, you may wish to seek professional advice from a qualified tax advisor.”

How can the R&D tool be used?

The tool is a welcome development from HMRC and adds to the available resources to help guide companies on whether a project qualifies. It is particularly relevant for those new to claiming and helps businesses to understand the key concepts around qualifying R&D projects and the information needed to make a claim.

The guidance stresses though that even if the tool does indicate that your project qualifies as R&D for tax purposes, it doesn’t necessarily follow that relief can be claimed on all R&D-related costs. The R&D guidelines should be consulted, in conjunction with an adviser.

What to do next

On a practical level, HMRC recommends that businesses save or print the tool’s result and keep a record of the information used to answer each question. This will potentially help businesses making a claim and provide supporting evidence if a claim is later enquired into.

It’s also important to remember that while positive, the tool should not be treated as giving a definitive answer. It is like GfC3 in that it complements the guidelines and aids understanding, but is no substitute for professional advice.

Experience tells us that potential claimants and their CPs should first read the guidelines and GfC3 to gain a baseline knowledge. That knowledge can then be tested by using the tool, before employing a specialist adviser to review the project and progress the claim.

How ForrestBrown can help

As the UK’s leading R&D tax credit consultancy, we have over a decade’s experience reviewing projects and assessing businesses’ eligibility for the relief. We have a dedicated team of industry-experienced sector specialists who work closely with our tax experts and your company’s CP to review projects and assess eligibility – often identifying additional value.

We then take on your claim preparation and submission, ensuring that key procedural milestones such as claim notification are met. Our rigorous approach to R&D claims means that value is optimised and detail robust. This means that you can claim with confidence and feel reassured that all bases have been covered should HMRC open a compliance check.