Assumption + Assumption = ?

WHEN it comes to claiming R&D tax credits, many business managers assume their accountant is best-placed to handle the claim while they provide the technical input.

And there’s probably an automatic assumption by many accountants that if they have the correct technical information, a claim is fairly straight-forward.

Admittedly, the fact that any limited company developing new products, technology or processes may be eligible and can claim for up to two accounting years retrospectively, sounds straightforward enough.

But even when a company ‘owner’ or director feels he or she can identify R&D projects better than anyone else, scoping them in the context of the R&D Tax criteria is not that simple. it’s technical understanding combined with an in-depth knowledge. Without that the numbers might not add up.

So the reality is that presumptions can fall way short of the need for an in-depth understanding of what potential R&D activity may or may not fit within the context of the current legislation.

Even the meaning of R&D in the context of R&D Tax Relief is not straightforward. In fact, it’s not limited to the R&D department. HMRC defines R&D as work that achieves a scientific or technological advance when scientific or technological uncertainty exists.

This can include achieving an increase in overall scientific or technological knowledge or capability; significantly improving products, processes, materials or services through scientific or technological development; or using science or technology to duplicate the effect of an existing product or process in a new or appreciably improved way.

For instance, a whole project might not qualify but the element addressing the ‘technological uncertainty’ does. That can include planning and managerial activities in some instances.

To be sure a claim is justifiable and as beneficial as it can be, an accountant must fully understand the detail of the HMRC guidelines. That’s a 15-part manual and then when you’ve read through it all, you’ll need the technical expertise to define, quantify and support a claim.

But a specialist partner that lives and breathes R&D with extensive experience in supporting companies in funding, resourcing and exploiting R&D would make the process more efficient and more profitable for all parties.

Our clients often find that our objective, expert evaluation and broader experience in supporting technology companies can fundamentally change the way they look at and approach their R&D strategy going forwards.

Let’s consider an actual claim. A healthcare software company had previously submitted R&D Tax Credit claims via its accountants but was concerned that, due to the complexity of the legislation, it might not be fully compliant.

We ran a review and our specialist was able to identify a significant value of under claims and some over claims due to errors. Two experts (Technical and Financial) spent a day with the client identifying eligible projects with the technical team and accessing relevant financial data.

A detailed report was subsequently prepared to submit to the HMRC as supporting documentation for a revised claim and the client received an additional £75,000 tax offset and was fully compliant in the event of an HMRC audit, with robust supporting documentation.

We could have achieved the same result had we worked with the accountant from day one. We operate on a ‘paid-on-results basis’ so it’s a risk free collaboration that brings benefits and financial rewards all round.

Click here to sign up to receive our new South West business news...
Close