Schedule of Professional Services - Research and Development Tax Claim

 


SCHEDULE OF PROFESSIONAL SERVICES – RESEARCH AND DEVELOPMENT TAX CLAIM

 

The purpose of this schedule to our engagement letter is to set out the basis on which we are to provide taxation services as your agents on the basis that you will make full disclosure to us of all relevant information.

1. R & D TAX CREDIT CLAIM

1.1 You have asked us to assist you with preparing a claim for R&D Tax Credits for the years ended 31 March 2015 and 2016 for you to submit with your corporation tax returns. In order to do this you have agreed to prepare the following:

1. a detailed description (including photographs and drawings) for each project seeking a scientific or technological advance;

2. a fully completed "crib" sheet for each such project (as set out in the attached appendix);

3. a detailed costing for each such project setting out:
1. the employee costs
2. consumable materials costs
3. power costs.

1.2 We shall not advise you as to appropriate payments of corporation tax and S455 CTA2010 liabilities (loans to participators).

1.3 If the company is selected for enquiry by HM Revenue & Customs, we will agree separate terms of engagement. The supplementary engagement letter will include responsibilities and fees as appropriate.

1.4 You will be responsible, unless otherwise agreed, for filing all returns, more particularly: the corporation tax return returns relating to employee taxes under PAYE, returns of employee expenses and benefits on forms P11D and the returns of income tax deducted at source as required on forms CT61. Your staff will deal with all returns and other requirements in relation to value added tax.

2. ENQUIRIES

2.1 We shall not be responsible for dealing with any enquiries from HMRC arising from your tax return. However, we can assist you with any such enquiry if you instruct us to do so.

2.2 If you instruct us to deal with the enquiry, we shall:

• We shall proceed and invoice you on a time-spent basis up to a cost of £500;
• If our costs exceed, or are likely to exceed £500, we shall discuss the matter with you further and agree a costing for our work.

3. GUIDELINES

3.1 We are bound by the ethical guidelines of the Institute of Chartered Accountants in England and Wales (“ICAEW”). Under those guidelines we are obliged to accept instructions to act for you on the basis that we will act in accordance with those guidelines.

3.2 It is a criminal offence for the company not to comply with tax legislation. It is not part of the scope of our work relating to taxation to carry out a compliance exercise on whether you are in breach of any tax legislation. You are responsible for ensuring that the company complies with relevant tax legislation, and we are entitled to assume that it does so.

3.3 In any tax planning advice that we may offer, we will only consider the possible tax consequences of changes to your investments and will not offer any advice or comments on the possible other merits or otherwise of particular acquisitions or disposals of specific investments.



‘CRIBSHEET’ FOR RESEARCH AND DEVELOPMENT TAX CREDIT CLAIM

R&D narrative for each project:

The narratives should specifically respond to the required information in a format that is easy to follow, using plain language. When preparing a narrative it is helpful to respond to the eligibility criteria. The five main eligibility criteria required to demonstrate qualifying R&D activity for tax purposes are as follows: -

a) There must be a project (PARA 3 2004 DTI guidelines) – i.e. you must set out to do something, not just happen across something and then claim retrospectively.

You should provide brief details of what the R&D project is.

b) That project must be in a field of science and technology. Defined in PARA’s 15 to 18 of the 2004 DTI guidelines.

It excludes humanities, social sciences, economics etc.

You should provide brief details of what the scientific or technological field is in which the R&D project is undertaken.

c) The project must have sought to achieve an advance in that area of science or technology (PARA 6 2004 DTI).

The advance must be in the overall state of knowledge and capability in that area of science or technology, not just the company’s.

You should state clearly what the advance is and why it is an advance (in the eyes of a competent industry professional). Rather than stating the name of the product, process, functionality, etc, being developed you should consider what scientific or technological advance is being sought. This focuses attention on the project's aim for an advance, which is the key issue in judging whether R&D for tax purposes is being undertaken.

Science does not include work in the arts, humanities and social sciences (including economics).

It's not enough that a product is commercially innovative. You can't claim in respect of projects to develop innovative business products or services that don't incorporate any advance in science or technology.

d) The project must have encountered scientific and/or technological uncertainty (PARA 13 2004 DTI).

See point (e) for definition of what is scientific and technological uncertainty.

Uncertainties that can be resolved through relatively brief discussions with peers are routine uncertainties rather than technological uncertainties.

Technical problems that have been overcome in previous projects on similar systems are not likely to be technological uncertainties.

You should set out at a high level, in a form understandable to the non-expert, what these uncertainties were and when they started and ended.

You should describe the methods adopted to overcome the uncertainties and the investigations and analysis undertaken. This need not be in great detail, simply sufficient to show that the matter was not straightforward.

Describe the successes and failures and the impact of these on the overall project. If the uncertainties were not overcome, explain what happened.

e) Something is only a scientific or technological uncertainty when the resolution of that uncertainty was not readily deducible to a competent professional working in that field (PARA 13 2004 DTI).

Anything that can be readily resolved (PARA 14) is not R&D.

It might be publicly known that others have attempted to resolve the uncertainties and failed, or perhaps that others have resolved the uncertainties but that precisely how it was done is not in the public domain. In either case a valid technological uncertainty can still exist. Alternatively, if the project is one where there is little public information available, you'll need to show that the persons leading the R&D project are themselves competent professionals working in the relevant field. This might be done by outlining their relevant background, professional qualifications and recent experience. Then have them explain why they consider the uncertainties are scientific or technological uncertainties rather than routine uncertainties.
Whichever is appropriate set out the details and have evidence available if needed.

Updated April 2017

 

 

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