Writing an effective R&D Tax Credit claim: Get the technical narrative right
If your company is based in Ireland and has completed any activities around research and development in recent times, it could well be worth applying for R&D Tax Credits. A scheme administered by the Revenue that’s designed to back innovation by reducing your corporation tax bill, by not applying – or not applying correctly – you could literally be missing out on thousands of Euros.
Part of the work in applying for your R&D Tax Credits claim is to complete what’s referred to as a “technical narrative”. This piece of work really matters and can mean the difference between success and failure.
Besides making a good application and receiving your R&D Tax Credits, the other main objective in this process is to avoid a Revenue enquiry. It’s important that the technical narrative produces a coherent, cohesive text that puts the company’s R&D work in the very best light so that it passes Revenue’s inspection without any further questions.
Revenue enquiries are really not much fun. They’re time consuming, costly and often very stressful, especially when they are focussing on a specific type of innovation and whether it qualifies. This is what makes it so vital that your technical narrative is not only very clear but is unambiguous too. As long as the technical work is completed well (and, assuming of course that the company’s R&D activities do actually qualify), the Revenue will likely give it the green light with no further technical questions needed. However, if your work is unconvincing or poorly presented, then the Revenue is more than likely to get back to you with even more detailed and probing questions.
Before you start, make sure you have the right data
The first thing to do is decide the actual person in your company who’s going to be the one writing the technical narrative. Depending on your company’s size, it may be preferable for the individual who was mostly closely involved with the R&D to be the one that produces the technical narrative. However, be careful here as that person’s time is most likely stretched already, and you need to be highly confident that they have adequate brain space and capacity to take on the work properly; no rushed jobs or missed steps. Again, the main point here is that your technical narrative is completely solid and watertight. If capacity is limited, get an extra member of staff involved and incorporate some additional resource to deal with the Revenue’s questions on the technology – it’ll be far cheaper in the long run than dealing with an enquiry.
The individual providing the information about the R&D should really be a technical person or a developer and not a manager. This is because managers have a tendency to talk about things which aren’t directly relevant or helpful, like issues with users/customers, deliveries being late or problems with funding. They also tend to say too much about problems with stakeholders or project planning, as well resources, procurement and tight deadlines. Whilst all of this is very interesting, it isn’t actually anything to do with R&D Tax Credits so isn’t helpful on your application.
Even if the member of staff is technical, there are still things they need to be careful to avoid. For example, wording like “it was all really routine and nothing too taxing was developed” or “it was ages ago so we can’t remember exactly what was developed and when” will put the company in a really negative light which won’t help your application at all.
Another thing to point out is that if the data for your R&D claim is coming from the wrong member of staff, it’s unlikely to be the best quality. If the data itself isn’t very clear, then the person writing the narrative will really struggle as they can only base the accuracy of their work on the data provided. After all, it’s the technical people who will need to make up a substantial part of the defence process if the claim is challenged by the Revenue. This makes finding a team member who’s knowledgeable about the technology, and who is prepared to argue that it’s innovative, very important indeed.
Writing the narrative
So now you’ve got the high quality data but how do you actually complete the technical narrative so it passes all the Revenue’s checking processes with flying colours?
Remember that the Revenue is only interested in proof that a technological advance was made, and less in how you got there. It’s also assumed that the more difficult the process was in solving the problem, the more likely it is that R&D took place.
Your technical narrative is essential in bringing home the bacon. It’s your main opportunity to prove that not only was R&D conducted but that it also solved an uncertainty or technical problem that needed solving. As you’re writing, remember to keep it simple; going into way too much detail or writing reams and reams won’t boost your chances of success. Somebody at the other end has to read it all, so make it easy for them by writing short, snappy narrative covering roughly 2 to 5 sides of A4. Don’t use jargon either. The Revenue needs to understand the problem and how you worked to solve it quickly and simply. Too many buzzwords and technical jargon will be off-putting to say the least.
The next thing is, make sure you match the length of your narrative to the size of the claim - sounds simple, but it’s really important. Although you need to include everything make sure your work is concise; this is one time when size matters.
Finally, don’t shy away from including information about R&D projects that weren’t actually successful. In desperately trying to paint the company in a good light, it’s tempting to miss off the bits that didn’t quite go to plan. But in fact, by including this kind of information it demonstrates to the Revenue that the problem was incredibly hard to solve, even for competent professionals.
Talk to the experts at Tax Cloud
Designed and created by the expert team of R&D tax consultants at Myriad Associates, the Tax Cloud portal can help both businesses and accountants navigate the R&D Tax Credits claims process quickly and simply. As part of our service, our technical experts will help you prepare your technical narrative inline with Revenue best practices to ensure your claim is secured and maximised.
If you have a question or would like an informal discussion about any aspect of R&D Tax Credits or accounting for companies based in Ireland, feel free to get in touch with us today on +353 1 556 2001 or use our contact page.
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