My director client is paid by low salary and dividend. He time working within his company is heavily devoted to innovation and development of new products. He has been advised he is able to claim R&D tax credit on the basis of his time spent, on a market value basis rather than the £9k per annum he is paid via the company payroll scheme? Is that legitimate?
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No it's not legitimate. The R&D claim has to be based on costs actually incurred, not whatever figure an R&D "specialist" can dream up.
If that's the level of advice he is getting then I'd suggest to your client to seek out someone else to do their R&D claim, and if he doesn't then I'd consider taking nothing to do with any amendment that is required to the return.
Penny and the bun - he wants the favourable tax treatment of low sal / divs, and also the favourable treatment of a 'normal' salary for R&D tax.
It'd fall flat on its face, especially if AA is being sought. HMRC will now agree R&D in principle, and will consider the actual costs claimed separately. If you don't run those costs by the AA team in advance of the claim, they are clear that if they wish to challenge, they will do so via enquiry.
Obviously, the threat of interest and penalties in such a scenario should ensure that you keep the claim clean.