Do your client’s Competent Professionals meet HMRC’s strict criteria?
HMRC's guidance on R&D tax relief is full of nuanced, specific definitions, that often cause confusion or trip up even the most experienced advisors. Here we take a deep dive into one of those - Competent Professionals.
One way that HMRC is currently denying R&D claims is tell your client that their staff aren’t ‘Competent Professionals’. Gosh, that sounds insulting, doesn’t it? So what exactly do they mean by this particular piece of jargon, and why is the notion of a Competent Professional so central to the success (or otherwise) of an R&D claim?
HMRC’s definition of a Competent Professional
This term isn’t defined in either the R&D legislation, or the DTI/BEIS/DSIT guidelines that define R&D for tax purposes. This was something of an omission, which HMRC rectified at CIRD81300. According to this, a Competent Professional is someone who:
- is aware of current technical developments in their sector,
- is knowledgeable about the scientific / technical principles in this area of technology,
- is experienced in their area,
- would be recognised as having a successful track record.
Notice that formal qualifications aren’t mentioned, although in practice HMRC seems quick to question whether someone without them can be considered a Competent Professional.
The guidance also explains that working in a field, or having an intelligent interest in it, does not by itself make a person a Competent Professional.
How important is the role of a Competent Professional in an R&D claim?
Competent Professionals are the cornerstone of a successful R&D claim. Without a credible and articulate Competent Professional involved in (and ideally leading) the project, the claim is vulnerable to the following challenges from HMRC:
“If you didn’t have a Competent Professional…
- “…how did you know what the baseline level of technology was?”
- “… how did you know whether an advance in technology was required?”
- “…how did you manage to make an advance in technology?”
- “…how did you ascertain that the issues you faced were technical uncertainties?”
- “…how did you know that the advance you sought was appreciable?”
- “…how did you manage to resolve the project’s technical uncertainties?”
And so it goes on. All the terms in bold rely on the judgement of a Competent Professional, which is why they are so essential. It is the Competent Professional who has the skills and experience to know when R&D is required. It is they who can define when R&D starts and stops, and they who are instrumental in planning and achieving the advance. And it is definitely the Competent Professional who is best equipped to defend the claim when HMRC comes knocking with an enquiry.
Where do companies make mistakes?
When helping advisors with claims, one of the biggest problems we see is when there is a difference between the client’s expertise and the area in which they’re claiming an advance.
For example, consider a manufacturing company that’s investing in the development of a software system. The company’s staff are experts in manufacturing, but not in software. HMRC is usually quick to point out that its staff’s expertise (manufacturing) is in a different area to the claimed advance (software) – and this quickly leads to all the questions listed above.
Getting ahead of HMRC
This type of confusion is particularly common with software claims, in which the client thinks the system qualifies because it is ‘new’ (in that it is bespoke to them) – without realising that its development is actually pretty straightforward.
However, this isn’t the only mistake that’s easy to make.
To help you avoid making avoidable errors, we’ve pulled together some resources to help you. Our free Red Flag Checklist can be used to review claims before they’re submitted. If you do get an enquiry, our free guide 'How to Handle an R&D Enquiry' tells you what to expect and how to defend it.
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