Every job requires a specific level of knowledge and competence. If you use the wrong tool, you can destroy something beyond repair. So who do you trust completing your R&D Claim?
When happens when you have help from the wrong people when completing your R&D claim? I had a recent client experience which was somewhat eye-opening. They had performed some fabulous work, but it simply didn’t meet the criteria for R&D Tax Credits – it simply wasn’t sufficiently challenging.
My client had showed me a single page of A4 on his laptop. He explained to me “This is what my accountant submitted last year”. The report was scarce and only contained a fraction of the information requested by HMRC. It certainly wouldn’t stand up to scrutiny if it was inspected. But the worst was yet to come.
The accountant had made a claim which was totally ineligible. If challenged by HMRC, it would have been rejected.
The claim was for the development of some software, all done by the in-house software engineer. The problem was that the software didn’t represent an “advancement in technology” – what we mean by that, is that while the software development was technically challenging to the in-house engineer, it could have been performed by another competent professional without any challenge.
This isn’t an isolated case – and the moral of the story is very, very simple. To find out more, read on…
3 key steps to completing your R&D Claim
There are 3 key steps to completing an effective R&D Tax Claim:
- Understanding and identifying eligible activities in the business. This results in preparing the technical aspects of an appropriate report, containing the information required by HMRC
- Calculating and presenting the eligible expenditure. This has to be broken down into the required categories, taking into account complicating factors such as grant funding received. Final claim figures are calculated for both the RDEC and SME schemes
- Completing the CT600 (company tax return)
Each of these steps requires certain knowledge and skills:
Firstly, step 1 needs a total understanding of the R&D Tax Credit Scheme. This should be complemented by a good technical knowledge, and a strong set of conversational and investigatory skills. This allows you to help a client understand what they can claim within the rules of the scheme. No financial or accountancy knowledge is required for this stage.
For step 2, you have to understand how to collate the required financial information. From this, you then need to derive the total eligible expenditure for the RDEC and SME schemes. You will need to understand the implications of aspects such as subcontracted R&D and grant funding. Again, for this stage, you don’t need specific accountancy skills.
Step 3 requires the ability to submit financial information and the final report to HMRC on behalf of the business. This is where the financial accounting body for the client pays a key role. They have to submit this, as it’s beyond the capabilities of the party completing steps 1 and 2.
The important message here, is that steps 1-3 require totally different skill sets.
What should you look out for when completing your R&D Claim?
Companies exist who complete all aspects of the process for you (i.e. steps 1-3) but they tend to be extremely expensive. In most cases, they won’t deal with a client with less than £40-60k’s worth of eligible spend, and then they charge around 20% of your claim(which averages a charge of £10k per report).
Conversely, some accountants employ R&D Tax Credit specialists or take considerable time to learn the skills required to complete phases 1 and 2, and are sufficiently competent in the total process. However, they also tend to have the limitations of the higher claim requirements and fees.
The main danger is where you get a specialist company who wants to “gild the lily” a little to maximise their percentage, or an accountancy firm who does not have sufficient understanding of stages 1 and 2 (in particular stage 1) and in either case, develops a claim with ineligible activities and spend. While HMRC do not currently investigate many claims in detail, if your claim is one of the chosen few, it is likely to be rejected by HMRC with a possible fine and having all previous claims (and further tax aspects and returns) investigated in more detail. This is likely to cost you a LOT of time while audits take place.
If you’re the accountant in question, this may also result in all of your other client claims being investigated, even though the incorrect claim was not intentional, and simply down to your misunderstanding of the precise rules.
This will certainly upset your clients, may result in THEM being fined, and could have considerable consequences for your client base, reputation and hence business.
The moral and best way forward completing your R&D Claim
The moral is simple – let people do what they’re best at.
Our approach to this is clear:
- We’re R&D specialists (not accountants) so we perform step 1 with your support. We quickly and efficiently identify what’s eligible to claim.
- Our state-of-the-art software which has been developed by R&D and accounting specialists to speed up R&D claims, and allows us to calculate and prepare your precise figures in a single hour’s meeting.
- We can then print your automated report at the click of a button. We don’t take days studying your business and writing reports, so we can significantly reduce our costs(offering a flat fee – not a percentage) and also save you a lot of time in the process.
- The report is then given to your account, who can do what they’re best at – filing it with HMRC to get you your money back in the shortest possible timeframe.
So, that’s it! R&D Claims made simple.
We work with a range of organisations including direct clients, accountants, business incubators and others to help maximise your R&D claims with the appropriate process and documentation. We don’t offer bullsh*t, excessive reports or gilded lilies. If you want us to help you or your clients with their claims, please contact us for a discussion.
For more information on our claim process, click here: RandD Tax Claims – About R&D Tax Credits
Or you can read the slightly longer (more complicated!) version from HMRC here: https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief