Companies using AI in their Research and Development tax claims risk HMRC rejecting their tax relief
AI use in Research and Development claims must be coupled with human oversight
21 January 2025 | Author: Ele Theochari
AI used for Research and Development (R&D) tax claims must have human oversight, or companies risk HMRC rejecting their tax relief.
Ele Theochari, Partner and R&D specialist, said:
From a R&D tax perspective, the government’s recently announced AI Opportunities Action Plan poses both opportunities and risk.
Over the past few years, AI R&D claim tools have been developed by a number of providers to both prepare and submit the R&D claims and additional information forms, with one provider falsely claiming it has special privileges with HMRC.
There are a number of issues with this approach, particularly with regards to the preparation of an R&D claim. Many peers that I have spoken to agree that you can spot an AI-produced R&D claim a mile away; there’s often a lot of words with very little substance. Such claims are unlikely to stand up to HMRC’s scrutiny.
Over the past 4 years, many very large, quantity-driven R&D providers have ceased trading due to the poor quality of their work and the number of subsequent enquiries that they are unable to defend. There is a genuine concern that having R&D claims prepared predominately using AI could result in these types of businesses springing up, as there would be very little technical knowledge required to produce a piece of text, combined with only a 20% chance that the claim might get enquired into.
Given the scrutiny that R&D claims have been, and continue to be, placed under by HMRC, while AI could certainly be introduced to streamline parts of the R&D claim process, the role of the adviser cannot be underestimated. An AI-produced claim that has not been adequately reviewed would pose a challenge for a claimant company to defend, as even when factually correct information is used as a source by AI it can introduce inaccuracies and falsehoods into the text it generates, known as ‘AI hallucinations’.
Beyond the advisers, there has also been limited success from HMRC’s enquiry teams when exclusively using AI as a means of fact-checking and responding to open compliance queries due to the issue of AI ‘hallucinating’.
Some of the ways that AI is being used positively, however, as part of R&D claims include:
- Assimilating and summarising information from technical interviews, documents, and other resources;
- Quickly and effectively establishing baseline technologies and products that already exist in the public domain as a starting point for technical discussions;
- Assisting with research; and
- Utilising AI tools to assist with large, complex calculations.”
Ele concludes:
In all R&D tax claim circumstances, AI should be used in conjunction with specialist knowledge to ensure that the text it produces is both factually correct and fit for purpose
Would you like to know more?
If you would like to discuss any of the above, please speak to your usual Blick Rothenberg contact or Ele Theochari using the form below.
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