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Under the new R&D tax rules, identifying qualifying activity is only part of the job. Where R&D involves customer, contractor or subcontractor arrangements, an otherwise valid claim can fail because it has been made by the wrong company. This practical session looks at how the contracted-out R&D rules determine which party is entitled to claim, how to distinguish a contract for R&D from a contract whose delivery happens to require R&D, and what evidence you should get before filing. Using realistic case studies, the session will highlight common traps, double-claim risks and the steps needed to reach a position that you can defend.

The introduction of the merged R&D expenditure credit scheme has fundamentally changed the treatment of R&D carried out through customer, contractor and subcontractor relationships. For accounting periods beginning on or after 1 April 2024, it is no longer safe to assume that the company carrying out the technical work, employing the development team or bearing the immediate cost is entitled to make a claim. Accountants have to determine whether the R&D was contracted out, what the customer intended or contemplated when the commercial arrangements were made and which company is entitled to relief under the new rules.

This practical session will help you recognise situations in which an apparently valid R&D claim could be made by the wrong company. Through worked examples, it will explain the questions that should be asked of clients, the contracts and supporting evidence that should be reviewed, and the risks of relying on assumptions developed under the former SME and RDEC regimes. Following this session you will be able to protect legitimate claims, identify double-claim or no-claim risks, advise clients before contracts are entered into and recognise when specialist input is required. 

In this session Simon Briton will cover the following topics:

• How the claimant entitlement rules have changed - A brief comparison of the former SME and RDEC rules with the merged scheme and ERIS, explaining why established assumptions about subsidised and subcontracted R&D may no longer produce the correct answer.
• What is meant by contracted-out R&D - The statutory test, HMRC’s interpretation of it and the importance of determining whether the customer intended or contemplated that relevant R&D would be undertaken. This will include the distinction between contracting for R&D and entering into an ordinary commercial contract whose performance later requires the contractor to undertake R&D.
• Is your client entitled to claim - A practical analysis of the factors that may indicate whether entitlement rests with the customer or contractor, including the project specification, technical knowledge at the outset, responsibility for identifying the technological advance, control over the technical work, financial risk, intellectual property and the role of each party’s competent professionals.
• Contracts, evidence and difficult cases - How to examine contracts, proposals, tender documents, correspondence and contemporaneous project records. This section will consider vague contracts, pre-contract development, changes in scope, unexpected technical uncertainty, subcontracting chains and situations in which both parties may believe that they can claim.
• A practical process for accountants - The questions to ask during client onboarding and claim preparation, how to document the entitlement conclusion, what should be reflected in the additional information form, how to approach uncertainty about another party’s claim and what accountants can do before contracts are signed to improve the client’s position

By attending this session, you will:

• understand how the merged scheme has changed the allocation of R&D relief between customers and contractors;
• be able to recognise when the contracted-out R&D rules need to be considered;
• recognise circumstances in which both parties might claim, or in which a valid R&D project could go unclaimed;
• be able to ask clients more focused questions about their contractual and commercial arrangements;
• understand how contracts and contemporaneous records may support or undermine entitlement to relief;
• be able to document a more robust and defensible conclusion before submitting a claim; and
• recognise when the entitlement analysis requires specialist technical or legal input.

The session will be of particular interest to:

• accountants and tax advisers who prepare or review R&D tax relief claims;
• corporation tax managers and compliance staff;
• advisers to software, engineering, manufacturing, construction, life sciences and product development businesses; and
• accountants advising agencies, consultancies and specialist contractors;

The session assumes a basic familiarity with R&D tax relief but does not require detailed prior knowledge of the new contracted-out R&D legislation.

Course level: Need to know

The session will include intermediate technical analysis, but its subject matter is relevant to every accountant preparing or reviewing R&D claims under the merged scheme. The new rules can determine whether an otherwise valid R&D project produces any relief for the company making the claim, so claimant entitlement should now form part of the core claim review process.