UK Bank – Optimising R&D Tax Credit claims for complex banking transformation projects
Our client is one of the leading banks in the UK. The banking industry is going through rapid changes with a number of new regulations and overall compliance requirements. The bank is also making a number of transformational changes to internal systems to benefit from new cloud based technologies, advanced data management capabilities and fraud detection. With several leading edge development projects underway, the bank is innovating on multiple fronts to create attractive user experiences for customers and develop platforms that can provide secure, highly resilient, scalable and modern capabilities.
PROBLEM STATEMENT / THE ASK
As a large organisation with a highly diverse team of technology and business specialists, the bank undertakes a very large number of projects every year. Due to this, they have found it challenging to narrow down on potentially qualifying R&D projects. It has also been a challenge to establish how to balance the review, with the time available from technical staff to ensure the return on investment is maximised.
On the assessment front, the bank has been unsure regarding the extent of qualifying activities and how their engagement with suppliers impacts the R&D claims. They also capitalise parts of project expenditure in their accounts and were unsure of potential qualifying activities within them.
Invenics has strong expertise in the financial services space with a number of technical staff who have led claims for some of the largest banks and financial organisations in the UK. Invenics were engaged as the technical advisors for developing the claim methodology and assisting in the R&D eligibility assessment.
Invenics started the R&D claim process with a review of the client’s project data from various sources, including timesheets, third party spend and ad-hoc data from business units. Combining everything together, we came up with a consolidated project list with details of spend split by accounting treatment.
A RAG (red, amber, green) assessment was then performed with senior members of the bank’s team to establish which projects were potentially eligible. Following this, a statistically valid sample was chosen to establish a manageable pool of projects for assessment. Overall coverage of the project population was considered in detail before finalizing the sample to ensure that the results of assessment were robust.
Detailed technical reviews were undertaken with the bank’s technical staff to obtain R&D eligibility assessment. As part of this, specific focus was accorded to the issue of projects that were potentially “revenue in nature” for tax purposes and eligible for deduction under section 1308. This is a complex topic with multiple considerations and is largely based on case law. Invenics has specialist expertise in this topic with very complex projects and we were able to guide the client with clear examples on how to distinguish projects where this could apply.
Following the review, Invenics prepared technical descriptions for qualifying projects, along with clear explanation for the rationale for claiming projects where the expenditure included in intangibles was claimed under the RDEC scheme.
Our client has benefitted significantly from a more focused approach, which enables their technology and business staff to spend less time on R&D claim with better results. The client has been able to agree a methodology with HMRC which includes assessment of a sample of projects instead of reviewing the full population, which is not practically possible. The client is also confident about the capital vs revenue distinction on qualifying R&D projects.