Word is out that many more companies are eligible to claim R&D tax relief and credits than are currently claiming, which means hundreds of companies are missing out on this valuable source of additional cash.
The cash value of money left unclaimed in Government coffers is astounding, running into billions of pounds since the scheme started in 2000.
In this article I look at some of the reasons why companies are not claiming or under-claiming and the pros and cons of using your accountant versus a specialist to compile your R&D claim.
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 regular tax affairs, they are often the first to admit that they don’t understand or see the science or technology behind their clients’ businesses.
Yet many small business owners will look to their accountant for advice and help with making an R&D claim. I frequently come across companies that, once I alert them to the fact that they may have a viable claim, are persuaded by their accountant that they can provide all the assistance they need with making a claim. The business may see this as a cheaper option or simply the obvious place to go for tax advice. Unfortunately, in some cases this is not the best route to take. The following table aims to illustrate why that is, by comparing the activities commonly undertaken by the majority of accountants with those undertaken by specialist R&D consultants and pointing out some of the issues associated with each approach.
The problem for you is that the situation is a bit ‘chicken-and-egg’ as until you have spoken to a specialist you may well have no idea whether you qualify and if you do 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 is for companies and their accountancy advisors to pick up the obvious and make a claim based on that. This leads to under-claiming – sometimes by not just tens of thousands of pounds, but hundreds of thousands.
In another case the client, a company developing their own software, claimed costs of £20,000 per year including some ineligible expenses. Once we looked at their case we found over £100,000 of qualifying eligible expenses, 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.