When entrepreneurs approach us looking to claim Research and Development Tax Credits (R&D Tax Credits), they sometimes ask: “is this something my accountant can deal with?”.
Technically, they can. However, the due diligence process of checking whether your accountant has the required experienced in R&D tax is time-consuming and could involve meetings that turn out to be a waste of your time.
There’s a reason why research and development taxation has differentiated itself from other tax matters, and why there are fleets of dedicated R&D Tax Specialists across the country.
The overarching reason is that it’s a highly nuanced area of tax and requires additional knowledge of the important distinction between R&D and non-R&D activities – something that accountants are not typically trained in.
Admittedly, as R&D Credit Specialists, we might be a little biased – but there is a strong argument as to why it’s more effective to offload your annual R&D claims to an experienced R&D Tax Advisor, rather than including it in with your general accounting tasks.
We’re going to list them here. Use the points covered in this blog to reach an informed decision for your business when it comes to claiming R&D Tax Credits.
Reason #1 – The complex task of distinguishing qualifying R&D from non-qualifying R&D, and non-R&D altogether.
When completing the financial and technical reports that make up an R&D Tax Credit claim, there are two crucial steps to take in ensuring valid information is submitted to HMRC.
The first and most obvious is to look at a business’ project and determine whether the work done actually counts as R&D. If you answer ‘yes’ to the following questions, you fit HMRC’s description of R&D, and you should be able to claim R&D Tax Relief:
Did your project seek to make an advancement in science or technology?
Were there any technical uncertainties that your project had to overcome?
Were there competent professionals involved in your project? (AKA – specially trained experts within a particular field, such as a Senior Software Developer).
Is your advancement not yet available in the public domain?
The term ‘research and development’ is fairly vague at face value. An R&D Tax Specialist will relay this precise criterion of what it means to innovate in the eyes of HMRC, and will be able to tell you whether your business checks these boxes.
So, let’s say you’ve received confirmation that your project is classified as R&D. To claim R&D Tax Credits, you now need to distinguish your qualifying R&D expenditure from your non-qualifying R&D expenditure (and make sure you’ve spent money on the former!).
Qualifying R&D expenditure is a set of spending areas that occur in research and development, outlined by HMRC as ‘claimable’. These are the specific areas of spending businesses can recoup under the R&D Tax Relief scheme:
Subcontractors / EPWs
Payment to the subjects of clinical trials
(From April 2023, data and cloud computing costs, as well as pure mathematics, will be included in qualifying R&D expenditure.)
When looking at your R&D spending over the previous fiscal year, an R&D Tax Advisor will be able to ensure that you’ve incurred costs in these crucial areas and report it in sections accordingly.
If your accountant is inexperienced in the categories of qualifying R&D expenditure, certain costs could be reported under the wrong section, wrongly listed, or left out. Mis-labelled financial and technical information is a sure-fire way to trigger an investigation from HMRC – which significantly delays payment of your R&D claim.
From this, you can see that before the R&D claim gets fully underway, an R&D Tax Advisor completes thorough checks to ensure both your project and your previous year’s spending aligns with the R&D Tax Relief scheme and provides a strong basis for claiming R&D Tax Credits.
In some cases, our clients have reported that their accountants previously filed just about every cost related to innovation in their R&D claim – leading to their submission being picked apart later on.
Reason #2 – HMRC enquiry: is it worth the risk?
It’s no secret that HMRC have put major focus on increasing compliance and tackling abuse of the R&D Tax Credits scheme. In their attempts to stamp out fraudulent activity, HMRC has hired a large fleet of hyper-vigilant R&D Tax Credit inspectors. In turn, this has brought about a spike in formal enquiries - both randomly and on grounds of suspicion.
This was such a problem within the scheme that HMRC made the drastic decision to pause R&D Tax Credit payments across the nation, during Spring 2022, whilst they conducted an in-depth investigation. To learn more about HMRC’s crack-down on illegitimate R&D claims, read our related blog: HMRC pauses payment amid investigations into fraudulent R&D Tax Credit claims.
R&D Tax Credits now being heavily scrutinised brings about two problems for claimants filing their R&D claims through their accountant, or a non-specialist:
If the financial and technical components of the R&D tax claim aren’t 100% consistent, correctly reported, and justified, chances are you’ll face an HMRC enquiry. There is no margin for error or room to cut corners. This is sometimes too intensive of a process for an accountant – who must juggle multiple bookkeeping tasks – to pull off successfully.
Even totally sound R&D Tax Credit claims can face a random HMRC enquiry. If this happens to you, you must provide HMRC inspectors with further financial and technical evidence to defend your R&D claim reports. R&D Tax Credit specialists, such as our team at Claim Capital, offer an enquiry support service at no extra cost. Should any processing issues occur, your dedicated R&D tax expert will handle the entire enquiry process on behalf of your business. And better yet, our fixed fee is only payable once you receive your claim benefit from HMRC.
The same can’t always be said for accountants, or DIY R&D Tax Credit platforms. Without steadfast enquiry support service that follows proper protocol, the claimant will have a considerable amount of time taken away from their business as they must somehow prove the legitimacy of their R&D claim without professional support.
In turn, this will significantly delay their pay-out or even end up in the claim being completely dismissed.
Reason #3 – Receive a larger R&D claim benefit from reporting niche costs.
A seasoned R&D Tax Advisor will be able to identify even the most niche R&D costs to include in your claim, securing every penny possible for your business.
We’ve had clients approach us to review their previous R&D claim when they suspected their accountant wasn’t securing the maximum return, but in some cases, they were shocked to learn just how much tax relief they had been missing out on.
After reviewing the previous R&D claim made on behalf of our client, Unissu, our R&D Tax Specialists uncovered a shortfall of £32,000. This can occur when non-specialists don’t recognise the specific costs that fall under staffing, subcontractors / EPWs, software, consumables, and so on.
Upon reflection, claiming R&D Tax Credits is something that will inevitably boost your business's cash flow. But claiming R&D Tax Credits through the right provider is where you will see the maximum return from R&D Tax Relief, and the transformative difference that the extra thousands secured by a specialist can make.
To speak to one of our R&D Tax Specialists about your company’s potential to make an R&D claim, enquire into our R&D Tax Credit service today.