R&D tax credits - “We can get you more than they can!”
It’s not uncommon to hear of Research & Development (R&D) tax credit advisors proclaiming “We can get you more than they can” meaning that your R&D tax credit claims will be larger if you hire the proclaimer.
I am driven to take issues with this and I will tell you why. We live in a highly competitive world so everyone in business has to keep their pencil sharp. I would argue part of doing that means achieving high ethical standards, not to mention delivering top rate services. That is true for those advising on R&D tax credits, as much as any other business and whether we like it or not - every R&D tax credit claim has a ceiling. That ceiling is set by the total value of eligible R&D costs that you can legitimately identify. It’s as simple as that.
If you knowingly include more costs than you have expended on qualifying activities or you include ineligible costs, or you over inflate your true costs, you are at best acting unethically and at worst committing tax fraud. If found out, you should expect to suffer the consequences. If you unknowingly do it you are still culpable, as every business is responsible for ensuring their tax returns are accurate.
The only way that one R&D specialist advisor can get you more than another is if one has done a bad job of advising you and as a result some claimable activities and/or costs have been missed. That does happen. But, unless the person that is saying “We can get you more than they can!” has examined what someone else has done and/or looked into your R&D claim in some depth, they cannot possibly know whether they can get you more! So beware of that claim.
Any consultant worth their salt will work with you to ensure you understand what activities and cost qualify, so that you can compile accurate R&D claims, or at the very least check the accuracy of what is being compiled for you. Thus all things being equal, the amount of the benefit you get using one competent R&D specialist should be much the same as what you get using another.
What about the ‘grey areas’?
Having said that, even HMRC admits that there are some ‘grey areas’, particularly in the field of software development R&D claims. And sometimes you may not have good records e.g. of staff time spent on R&D, so you have to base your costs on ‘fair’ estimates. Even in these scenarios a good advisor will ensure you understand how to estimate your costs and identify any ‘grey areas’ where there may be risk of an HMRC challenge. You can then decide for yourself if you wish to take on that risk.
Risk of an HMRC enquiry
It’s currently the case that HMRC checks a very small proportion of R&D claims. But don’t let that become a reason for being ‘sloppy’ or ‘greedy’ it’s just not worth the risk. You could end up facing a time consuming and stressful HMRC Enquiry. If HMRC discover errors, omissions or a lack of evidence to support your claims they can go back up to seven years, claw back anything over claimed and levy heavy fines.
But all my claims have been approved
Most R&D claims are simply processed as part of your corporation tax return. The processing of a tax return does not imply approval of your R&D claim. In the UK we have a self-assessment regime – so the processing of your corporation tax return does not amount to HMRC approving your R&D claim.
What to think about when hiring an R&D advisor
Here are a few things to think about when hiring a specialist R&D advisor:
- How experienced are they (track record/knowledge)?
- How much will they costs to hire?
- Do they give a ‘no win no fee’ guarantee?
- How much (if any) hand-on support will they provide?
- Will they work with your existing tax accountant or take on part of that function (most accountants prefer the R&D advisors to work with them so your regular tax accountant remains responsible for filing your tax returns?
- Will they support you if HMRC challenges any of your past claims (HMRC can go back up to seven years if they discover errors or other issues with your claims).
Are you ready to find out if you qualify or how much your R&D claims could be worth?