How do you decide what qualifies?

Every amount in a claim is a statement that certain work meets a legal test. The test differs by country, but in every country the claim is only as good as the judgment that applied it.1Source 1The legal test for qualifying R&D: Internal Revenue Code section 41(d) (United States); Corporation Tax Act 2010 section 1138 and the Guidelines on the meaning of research and development for tax purposes, via HMRC CIRD81300 (United Kingdom); Taxes Consolidation Act 1997 section 766, via Revenue Notes for Guidance Part 29 and Tax and Duty Manual Part 29-02-03 (Ireland); Income Tax Act section 248(1) and CRA, "Guidelines on the eligibility of work for SR&ED tax incentives" (Canada); Income Tax Assessment Act 1997 section 355-25, via Department of Industry, Science and Resources, "Conducting core R&D activities" (Australia); Income Tax Act 2007 section LY 2, via Inland Revenue, "Eligible R&D activities" (New Zealand); Income Tax Act 1947 section 2 and section 14C (Singapore). More detail on your country page. Work that does not meet the test does not become qualifying by being included; it becomes a reason to reduce the claim on review, with the repayment, interest where it applies and any penalty usually falling on you.2Source 2The business repays a reduced claim, with interest and penalties where they apply: IRS, "Interest" and "Accuracy-related penalty" (United States); HMRC, "Tell HMRC if you've claimed too much R&D tax relief" (United Kingdom); Revenue, Tax and Duty Manual Part 29-02-06, "R&D tax credit: clawback of relief" (Ireland); Income Tax Act section 161(1) and CRA, "Avoiding penalties" (Canada); Department of Industry, Science and Resources, "Decisions we make about R&D Tax Incentive applications" (Australia); Inland Revenue, "Interest on overpayments and underpayments" and "Shortfall penalties" (New Zealand); IRAS, "Penalties for errors in tax returns" (Singapore). Rules under which a preparer or agent can be penalised alongside the business: IRS, "Tax preparer penalties" (United States); HMRC, Compliance Handbook CH81166 (United Kingdom); Revenue, Notes for Guidance, TCA 1997 Part 47, section 1055 (Ireland); Income Tax Act section 162(5.1) to (5.3) and CRA, IC01-1R2 "Third-party civil penalties" (Canada); Tax Agent Services Act 2009, sections 30-10 and 30-15 (Australia); Inland Revenue, "Shortfall penalties" (New Zealand); Income Tax Act 1947 section 95 (Singapore). More detail on your country page.

How the adviser decides is therefore your risk, not only theirs. A method you understand, applied by people who have talked to your technical staff, produces a claim you can defend. A method you cannot see produces a number you have to trust.

A description of the test in plain words, with examples from your own work of what is in and what is out. A conversation with your technical people before anything is decided. A willingness to say "this project does not qualify" and to explain why. An offer to show you the technical case before filing.

Everything qualifies, before anyone has looked. A method that starts from the amount you could claim rather than the work you did. Technical descriptions written without talking to the people who did the work. Reluctance to explain the test, or to say what was excluded.

• The clause: what counts as the benefit
• The script: asking to see the claim before filing
• Red flag: everything qualifies. Green flag: they tell you what does not qualify
• Myth: a bigger claim is a better claim

Sources

1. The legal test for qualifying R&D: Internal Revenue Code section 41(d) (United States); Corporation Tax Act 2010 section 1138 and the Guidelines on the meaning of research and development for tax purposes, via HMRC CIRD81300 (United Kingdom); Taxes Consolidation Act 1997 section 766, via Revenue Notes for Guidance Part 29 and Tax and Duty Manual Part 29-02-03 (Ireland); Income Tax Act section 248(1) and CRA, "Guidelines on the eligibility of work for SR&ED tax incentives" (Canada); Income Tax Assessment Act 1997 section 355-25, via Department of Industry, Science and Resources, "Conducting core R&D activities" (Australia); Income Tax Act 2007 section LY 2, via Inland Revenue, "Eligible R&D activities" (New Zealand); Income Tax Act 1947 section 2 and section 14C (Singapore). More detail on your country page.  Back
2. The business repays a reduced claim, with interest and penalties where they apply: IRS, "Interest" and "Accuracy-related penalty" (United States); HMRC, "Tell HMRC if you've claimed too much R&D tax relief" (United Kingdom); Revenue, Tax and Duty Manual Part 29-02-06, "R&D tax credit: clawback of relief" (Ireland); Income Tax Act section 161(1) and CRA, "Avoiding penalties" (Canada); Department of Industry, Science and Resources, "Decisions we make about R&D Tax Incentive applications" (Australia); Inland Revenue, "Interest on overpayments and underpayments" and "Shortfall penalties" (New Zealand); IRAS, "Penalties for errors in tax returns" (Singapore). Rules under which a preparer or agent can be penalised alongside the business: IRS, "Tax preparer penalties" (United States); HMRC, Compliance Handbook CH81166 (United Kingdom); Revenue, Notes for Guidance, TCA 1997 Part 47, section 1055 (Ireland); Income Tax Act section 162(5.1) to (5.3) and CRA, IC01-1R2 "Third-party civil penalties" (Canada); Tax Agent Services Act 2009, sections 30-10 and 30-15 (Australia); Inland Revenue, "Shortfall penalties" (New Zealand); Income Tax Act 1947 section 95 (Singapore). More detail on your country page.  Back