R&D webinar highlights: Issues and challenges when claiming for big data analytics

Distinguish statistical strategy from eligible R&D activity

When building your claim, be careful with statistical aspects of a project, because while the mathematical techniques are challenging, they aren’t recognised as qualifying by HMRC. You need to clearly associate work with technology improvements if you want those to be considered qualifying. As mathematical techniques are often intrinsically linked to developing the technology, making the distinction and understanding how the mathematics works can be tied back to eligible activity that HMRC will accept can be tricky. Although there isn’t a general approach or short cut, you may still be able to claim for your activity by thoroughly working out what is eligible. This requires a specialist R&D tax credits advisor who can help you separate activities and advise on how to present your claim. Speak to our R&D team for more information.

What are HMRC’s concerns around machine learning and artificial intelligence claims?

Machine learning and artificial intelligence have both become two of the hottest topics in technology over the past few years but they have also become hot topics for HMRC enquiries. During the webinar  we discussed the concerns HMRC have raised and, in particular, the worry that companies are taking existing solutions and applying them in their projects. We also dug into why HMRC might challenge a project on the grounds that it isn’t advancing the underlying technology. As HMRC can be wary of ML and AI claims, you need to think how your approach differs or improves on these techniques when claiming for your projects where you applied AI or ML technologies. Remember that unless the challenges and uncertainties are clearly explained, HMRC quite often assumes the project is simply training a standard ML engine and question if this is a qualifying activity.

The recent AHK Recruitment tribunal case shed some light on how HMRC will approach these issues going forward. For instance, HMRC challenged whether the AI technology was readily deducible as it applied techniques presented in the public domain. Further, HMRC challenged the expertise of the person reviewing the claim (i.e. the competent professional). The main area of challenge being whether they have the depth of experience in AI to make the assessment. Often the input of the team involved is required so it’s important for your company to keep detailed records to support an enquiry if people move on.  For more information about this tribunal please see here.

Our R&D team is happy to help scope out the project and assess the claim prior to submission to ensure you’ve considered all of the above.

Do SaaS, hosting and data licence costs qualify?

Across the board, businesses undertaking big data analytics projects incur increasingly large costs on hosting, software and data licenses. The problem we have is that, in its current form, the HMRC legislation on qualifying spend no longer reflects the development landscape and the way businesses operate. On the webinar  our R&D team explained the reasons why costs such as hosting payments are excluded, while software licenses can be claimed, and highlighted that with the new budget consultation things might improve in the future. 

What’s the impact of Spring Budget on your current or future R&D claims?

As we covered in our Spring Budget commentary, there were two announcements in relation to R&D claims. Firstly, HMRC are introducing a PAYE cap for SME cash back claims starting on 1 April 2021. The cap will limit the cash payment benefit to three times the PAYE + NIC paid by the claimant entity. Companies relying on overseas development teams, or who have complex structures, should consider how this will impact their claim. Get in touch with our R&D team, now is a good time to ask for advice on how to model your business and avoid any losses in return.

The second major announcement in the Spring Budget was that HMRC is conducting a consultation to review the effectiveness of the R&D tax credit scheme. This is a great opportunity to address the issues highlighted above regarding hosting and data costs. Therefore we strongly encourage businesses to take part in the consultation and have your voice heard by HMRC. We’ll be running briefing sessions to explain the consultation and to assist businesses in responding. If you’d like to know more about the initiative, please get in touch or visit the R&D scheme consultation website for more information.