• R&D Revenue Review
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R&D Revenue Review

01 September 2016

The Revenue regularly review R&D tax credit claims years after they were submitted. BDO's Derek Henry advises on common mistakes to avoid.


The R&D Tax Credit scheme is a valuable incentive which provides companies with tax credits of 25% on eligible expenditure associated with R&D activities. Annually, the scheme costs the Exchequer over €500m in the form of lax offsets and cash refunds. Given this high cost, the majority of claimants are likely to be subject to a Revenue enquiry at some point in time. With this in mind, here are some tips based on our significant experience in assisting numerous clients with Revenue enquiries over the past number of years.

Know The Science

We often find that a company’s understanding of what R&D is can be different to that defined in the relevant R&D tax credit legislation. For example, companies often believe that where they are doing something new it automatically qualifics for the scheme. This is not the case unless that novelty is based on scientific or technological advances. As such, it is important that claimants consider their project’s merits by reference to reasonably available information in the field as a whole as opposed to the claimant company’s current knowledge.

Support The Science

Where claimants submit that they have carried on R&D activities, Revenue are keenly focused on understanding what documentation exists to demonstrate that such activities were actually carried out and who was involved in these activities. So claimants should ensure that they adequately track the R&D activities over their life cycle. Key documents in this regard include timesheets, project planning documents, activity tracking details to include documentation of project milestones, design ideas, experiments carried out, test results and conclusions.

Link The Costs

Eligible costs are derived from eligible R&D activity. During a review, Revenue will seek to understand why individual cost items claimed are directly relevant to the R&D activities carried out. As Revenue’s interpretation of what constitutes eligible expenditure has changed significantly since the scheme’s introduction, it is important that claimants ensure that they are comfortable that the rationales or methods used for qualification of eligible costs can be defended.

Relevant Information

During a review, Revenue want to understand whether the above points have been adequately considered and met by claimants. As such, it is important that the discussions and information provided to Revenue focuses on the above points. For example, some companies solely describe the business case and business success associated with a given R&D activity. This is unlikely to give Revenue the information that they need to make an informed decision on the scientific merits of the claim.

Be Prepared

A Revenue enquiry can be made up to four years after a claim is filed, and staff turnover can make it difficult for a company to remember details of R&D activities carried out in the past. Therefore, we would advise claimants to compile a summary report to support each year’s claim. This should reference relevant supporting documentation and should be maintained centrally so that it can be easily accessed.

Conclusion

While nobody likes the process, Revenue reviews are an inevitable and required part of R&D Tax Credits. This is to ensure that the integrity of this valuable incentive is maintained and the appropriate claimants receive the benefits. Upfront review and preparation at the time of making the claim is the best way to ensure that the Revenue review is managed in the most efficient manner possible.


Derek Henry is a Tax Partner and head of R&D Tax Services. Within BDO he leads a team of technical engineers and tax experts who assist clients in all aspects of their R&D tax credit claims.

Originally published by Business Plus, September 2016.