Using R&D Specialists vs Accountants
The pros and cons
The Small and Medium Enterprise (SME) Research and Development (R&D) tax credit scheme has been running since 2000 yet there is still a lot of misunderstanding about the scheme, which can lead to under-claiming or worse still companies not claiming at all.
Below we look at some of the reasons why companies are not claiming or are under-claiming and the pros and cons of using R&D specialists vs tax accountants to provide advice with claiming R&D tax relief and tax credits.
Under claiming is largely the result of lack of knowledge about what constitutes R&D, not only within UK companies but also within the accountancy profession. This should come as no surprise as while accountants are specialists in dealing with company accounts and tax affairs, they are less likely understand the science or technology that is being used to drive the business forward.
Yet many small business owners will look to their accountant for advice and help with identifying tax schemes they should be benefiting from. We frequently come across companies that, once we alert them to the fact that they may have a viable R&D claim, are persuaded by their accountant that they can provide all the assistance they need with making a claim – even though, until we came along their accountant had not spotted they qualified.
Maybe people see their accountant as a cheaper option or simply the obvious place to go for tax advice. Some accountancy practices, usually the larger ones, have either ensured they have the relevant skills and knowledge or partnered with a specialist to provide that service for them. However there are still many smaller accountancy firms that simply are not up to speed, although they may not know it. We provide free professional R&D tax credit training workshops for accountancy practices – read more here
R&D Specialists vs Accountants
Unless a tax and accountancy firm has specialist R&D advisors the service they offer will not be as comprehensive as that provided by a specialist. A good specialist will maximise your claim while minimising your risks of an HMRC enquiry or challenge. Here is as simple comparison of the pros and cons of using an R&D specialist vs using a standard tax accountancy firm to support your R&D tax credit claims.
Review of the pros and cons of each approach
It is partly a matter of scale, the larger your R&D expenditure the more important it is to ensure you make a robust case to support your R&D tax credit claim. A robust case needs to include:
- A written document providing sufficient technical information to satisfy HMRC that you understand what qualifies as R&D and have correctly identified your qualifying activities.
- A R&D cost summary identifying costs against each qualifying expenditure type (supported by more detailed background workings that can be drawn on if HMRC decides to look in detail at your R&D claim).
For small claims, let’s say qualifying R&D expenditure under £30,000 per year, or a single project under £60,000, it may be sufficient to compile your own claim, with guidance from your tax accountant, but for larger claims it’s worth considering bringing in a specialist. A R&D specialist will help ensure you claim all you are entitled to should also save you time in putting your R&D claim together.
The problem is a bit ‘chicken-and-egg’ as until you have spoken to a specialist you may well have no idea whether you qualify or how much you have spent on qualifying R&D activities. Thus you won’t know how big your claim is and therefore whether or not you should bring in a specialist.
In one recent situation, we talked to an accountancy firm who had dealt with a claim themselves. HMRC called a meeting and offered to give their client 50% of the claim on the basis they were not sure if it was R&D, as neither the accountant nor the client really understood what activities qualify. Given that average SME claims are worth around £43,000 this is something that should be avoided.
The tendency for companies that don’t use a specialist is to pick up the obvious R&D activities and make a claim based on those. This leads to under-claiming – sometimes not by just tens of thousands of pounds, but hundreds of thousands of pounds.
In another case the client, a company developing their own software, claimed costs of £20,000 per year advised by their accountant, including some ineligible expenses. When we looked at their case we found over £100,000 of qualifying costs, which meant that in a single year they were able to claim an additional £16,000 in tax relief.
Good R&D consultants will offer you a free, no obligation, assessment to see whether you have a valid R&D claim and work out the rough cash value you can expect from making a claim. Download our R&D General Information Leaflet to see a list of the types of industries and activities that have successfully benefited from R&D tax credits or click here see if your company could qualify.
Are you ready to find out if you qualify or how much your R&D claims could be worth?