R&D Tax Credits –Overcoming the difficulties
Most companies have considered R&D Tax credits but been put off by a number of considerations.
The major consideration is that many companies who have developed their own products don’t think they are undertaking research.
Probably the next most important reason for not claiming is many companies having looked at the HMRC web pages are overwhelmed by the technical detail and tax jargon.
An example is where HMRC state you must be undertaking a “scientific advance”.
Accountants working for many companies shy away from R&D tax credits and are concerned that any claim will cause HMRC to pry into the affairs of the company. They also fear that they don’t have sufficient knowledge of the scheme to submit a claim.
It would be wrong to omit the impact of sales calls from R&D tax credit companies offering to deliver cash when they have no real knowledge of the company. There is little more off putting.
It makes this very worthwhile scheme appear tawdry.
Let’s address these very valid considerations.
Development and Research
Most companies don’t feel they are undertaking research. They see the work as day to day issues that have to be overcome.
To qualify a competent professional must be overcoming “technological uncertainty”
It is extremely easy to overestimate or under estimate the development work that qualifies.
If you are an innovative company who often has to get involved in “head scratching” then there is a good chance you are undertaking R&D.
The HMRC website has an extensive document which I doubt very few people have read from start to finish. The scheme covers all of British industry so by its very nature it has to be written in an academic accounting style, and is difficult to interpret for that reason.
The accountancy profession in my experience is divided into a small number of proactive accountants and a larger number of accountants who wish only to report the outcome in any financial year.
The need to marshal a technical justification written to answer the requirements of the scheme is beyond most accountants
What is the process and what are they like to deal with?
Around the country are five R&D Tax credit units manned by a number of specialists.
A first time claim is submitted on a corporation tax form, the CT600 and is sent to the normal tax office of the company.
It is then sent on to the appropriate R&D Unit where it is assessed.
Normal procedure is to include a technical justification covering the development undertaken.
The R&D unit specialists are professional in their approach. They are not vindictive, they are not seeking to reduce or deny claims.
However, they do enforce the rules of the scheme as they are obliged to do.
In the event of turbulence...
So what happens if they have an issue with your claim? They will contact you with their query or may arrange to visit the company
Often the issue is that a part of the claim is incorrect due to wrong use of terms as defined by the scheme e.g. subcontractor.
If there is a visit two individuals will arrive and discuss the project and then reveal their concerns
Usually the issue is resolved at the meeting.
The value of experience
So how can a company navigate its way through the scheme?
There is no substitute for experience. If you have a member of staff with experience of undertaking claims then that can prove an invaluable resource. If you are not in that position you should seek professional help. You need an R&D tax professional who can first of all assess whether you have a valid entitlement. Heor she should be able to explain why or why you may not have an entitlement.
This initial assessment should be free and without obligation.
Moving on from an assessment the professional should be able to identify the information required with the minimum of fuss and use of your time.
The next stage is to liaise with your accountancy firm and complete the paperwork
An experienced consultant will understand the HMRC procedures and have a working relationship with the R&D units. This relationship can save enormous amounts of time in the process and ensure any queries are promptly dealt with.
It is not uncommon for claims to lie untouched within the tax office. Your consultant should be aware of this and be able to expedite the claim.
So is it worth it?
The average claim in the first year is usually between twenty and thirty thousand pounds which would carry no tax obligation. Losses can be sold to HMRC and failed projects can count too.
A consultant typically works on a no win no fee basis.
Bear in mind if you have an entitlement that you will be able to claim up to two years in arrears and probably in every future year as product development rarely ceases in this day and age
This scheme is an excellent one that typically recovers 25% of development costs.
Could you make a claim yourself?
Of course but the time it would take you and the likely hood that it would raise HMRC queries mean it doesn’t make any sense to pursue that course of action
A good professional can ensure the process is as painless as possible.
Just find a good one.
If you would like to discuss your particular situation with an expert then please call us on 0207 851 8511. Alternatively, click on the button below and send us an email. We'll be in touch.