The Importance of the Competent Professional in R&D Tax Claims

This piece was originally posted on Accountancy Today.

Helping your clients identify the right person in a business to champion their research and development (R&D) tax relief claims is crucial for success. At the heart of the R&D requirements is the concept of the “competent professional” which has become an increasingly important factor in claims.

The issue was put under the spotlight during two recent First Tier (tax) Tribunal cases which hinged on whether the individuals involved in R&D claims had the necessary professional expertise to be deemed competent professionals.

As defined in HMRC’s Guidelines for Compliance (GfC3), a competent professional in the field can judge if a scientific or technological advance is needed to solve a particular problem. This person can:

• judge what is or is not an advance on the current state of what is known and understood.
• identify R&D activities seeking an advance and state where they begin and end.

You need that information to make a correct claim.

While this may seem straightforward, the challenge for claimant businesses and their advisers is that there’s no legal definition of a competent professional which has become an increasingly decisive factor in R&D tax claims, making it a key area of scrutiny during HMRC enquiries.?

In this blog, we explore what evidence you can provide to HMRC to demonstrate that someone is suitably qualified and discuss the lessons learned from recent Fist Tier Tribunal cases.

What is a competent professional?

According to HMRC’s Corporate Intangibles Research and Development Manual (CIRD81300), the expression ‘competent professional working in the field’ has not been defined as the natural meaning is considered to be self-explanatory. HMRC expect a competent professional to have all the following attributes:

• Is knowledgeable about the relevant scientific or technological principles involved.
• Has awareness of the current state of knowledge in their field as a whole.
• Possesses accumulated experience and a track record of success in the relevant area.

This person doesn’t need to work for the claimant company. While HMRC expects them to have been directly involved in the project, they may be an employee or an external party, such as a subcontractor.

What evidence can help support that an individual is a competent professional?

The GfC3 provide additional context on HMRC’s interpretation of the guidelines for determining R&D for tax purposes and offers supplementary guidance to the CIRD regarding the importance of a competent professional.?

It states that good evidence to establish whether someone is a competent individual can be one of the following examples (although this is not an exhaustive list):

• Recognised qualifications in the relevant field.
• Significant practical experience, typically gained over many years working in the field.
• Relevant publications in the field of the advancement.
• Evidence of recognition, such as awards, or industry accolades.

Although there is no requirement for all of these points to be met, it’s critical that there is sufficient evidence of the competent professional’s experience when making an R&D claim. The importance of this was highlighted by the two recent First Tier Tribunal cases.?

R&D winners and losers:

Flame Tree Publishing?

One case involved Flame Tree Publishing Ltd which specialises in publishing art, music, and lifestyle books. The company claimed R&D tax relief for its work developing software systems to support its publishing operations.?

The tribunal agreed with HMRC that the projects did not meet the required criteria and determined that there was a lack of evidence for the costs that were claimed.?

The company individuals involved in the project had no formal training or experience in computer programming or software development and no IT qualifications. They lacked the required experience in software development to meet the competent professional requirements and, therefore, had insufficient expertise.?

The case demonstrates the importance of the competent professional’s opinion on whether an advancement has taken place and the need for people with relevant experience in their field to successfully support a claim.?

Get Onbord Ltd

The other case involved Get Onbord Ltd (GOL) which claimed R&D tax relief for activities related to software development. HMRC had argued that the work showed no evidence of an advance and, therefore, was not R&D.?

However, the FirstTier Tribunal (FTT) ruled in favour of GOL. The tribunal remarked that although the company professional involved did not have any formal qualifications in the relevant area, it found him to be a very impressive witness, who spoke with complete fluency about the technical way in which GOL’s project worked and answered questions with assurance.

He was well-versed in the technical principles underpinning the project and knowledgeable about the existing industry capabilities within the relevant field.?

This case established that formal qualifications are not a prerequisite for a competent professional, and, in their absence, individuals must have a good understanding of the technical principles involved in the project.

Whilst there is no requirement to provide HMRC with the credentials of your competent professionals, by including robust evidence of their skills and experience – and their active participation in R&D projects – your clients can strengthen their claims.?

To ensure your claim is persuasive, consider including the following:

• Document credentials: Provide detailed evidence of the competent professional’s expertise, including qualifications, certifications, or a CV outlining relevant experience. If they lack formal qualifications but have significant practical experience, explain how their background makes them credible.
• Detailed reporting: Clearly outline the project’s scientific or technological uncertainties, advancements sought and how this represents new knowledge or capability in the field. Use accessible language and avoid excessive technical jargon.
• Active involvement: The competent professional should be closely involved in the project, contributing to its technical direction and outcomes. Make sure you can demonstrate this.

By providing as much evidence as you can about the competency of the professionals involved in R&D activity, you can greatly increase your client’s chances of making a successful claim. This is particularly important if the claim becomes subject to an enquiry.

If you are a competent professional in your industry and you think you have been doing R&D, connect with Shaun Bartle to see what Grantica can do for you.

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