We've recently had some R&D claims for clients, prepared by specialist firms, where the claims don't exactly seem to be what R&D is intended for.
As an example, we have a company where the project being claimed is them creating a digital process, for a marketing company, and this entailed testing what third party software best enables them to; collaborate with clients (essentially a portal where they could upload designs and clients can comment on them); implementation of a CRM system to allow them to track budgets, staff involvement, communicate with clients and store all client communications in a central location increase internal and cloud storage. The overall aim of the project was to allow them to do things quicker so that they can spend more time doing "adding value" to what they do.
The uncertainties were how their existing process could be adapted to entail the new technology and the concern of it not working - these were overcome by using different 3rd part software.
Maybe I'm missing something, but with new technology being available, doesn't just about every business have to do this, i.e. don't we all have to work out how to use technology to do things more efficiently and move with the times.
As a firm, we use Xero and CCH, so we have technology which allows us real time interaction with client's accounts, and CCH gives us a platform to store client communications, and a secure portal to approve documents. Does our time aligning our process to fit with this new technology count as R&D time?
I don’t think so.
We’ve had a couple recently claiming along similar lines, not actually developing or improving anything themselves.
That being said, we’re not R&D specialists, so are we missing a trick here? Is this something we should be looking at more closely for clients?
I know the HMRC guidance notes that improving processes can qualify for R&D, but what actually qualifies under this?
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Ah yes, the specialist firms . . .
I had a recent case with a client where I thought no claim was available to them. They took it up with the auditors who agreed. Client took it to a specialist. What a lovely surprise, a 6-figure refund from HMRC. Nice.
Are we missing a trick? Depends if you want to be a BS pedlar and prefer one-off 'consultancy' projects or be the voice of sanity and have an enduring relationship with your clients.
Ive seen some of the reports prepared by specialist firms and they have always been very aggressive. That is, after all, the whole point and of course many are commission based. They are also engaged in one off projects and have no loyalty to the client nor will they (in many cases) be around to witness the fallout if a claim is challenged down the line.
In house, we tend (like I assume most other practices are) to be I bit more cautious. We look at words like 'groundbreaking' and 'scientific uncertainty' and often struggle to see how our clients' activities can justify those descriptions.
I think the 'correct' answer lies in the middle ground. However for large claims I tend to offer to do the work but admit that a specialist company (one of the more reputable ones at least) should be better placed to help, will be much more aggressive, and will be more capable of defending any grey areas if a challenge is made. I therefore prefer to steer them this way, miss out on what is probably a real gravy train fees-wise, not risk an ongoing relationship for the sake of making a quick buck on something outside my normal area
A good read:
'Research and Development - Maximising the Tax Relief' by James Boughton and Lindsay Pentelow (Claritax books)
The scope is more wide ranging than you would think.
With R&D Specialists there is a huge amount of smoke and mirrors. The work involved is not that difficult - its just a case of knowing what to look for and how to interpret it.
The fees these specialists charge are eye watering and not always in a clients best interests. Take a loss making, cash starved Tech start up - £100k R&D tax relief (to offset against future profits) results in £25k fee for R&D specialist.
We always quote fixed fees for R&D claims and our fees (while still very healthy) are a small fraction of what these specialists charge. It builds client loyalty and attracts new clients from recommendations.
Bit of both I think.
My opinion is that Government/HMRC are pushing the R&D tax credits scheme - headlines such as only 20% of claims that can be made are.
With that in mind I expect there is pressure (within HMRC) for submitted claims to be approved.
At the same time I suspect that some claims submitted do blur the lines between fact and fiction to 'get over the line', so to speak.
Not an area I know much about but that's never stopped me from having a firm opinion.
I think the R&D relief is a waste of public money.
That said, it appears to be recurring work, replicable and profitable. A good area for practices to get into.
I have done several claim and quite frankly it was normally pretty marginal if it was R&D, but HMRC were falling over themselves to sign it off.
Its one of those "showing off" claims, that the political set like to make. "aren't we doing well with all the R&D relief" as opposed to "we are giving tax relief for stuff that would have happened anyhow, god we are terminally stupid"
All the % boys are far too incentivised to take any caution. If HMRC had some gumption they could save hundreds or millions by just chopping them down to size.
I've always done them on hourly rate.
I was approached by a R & D firm who was wanting me to send any claims I had to them.
The refferal fees they were offering were very tasty and I could see why when you saw the cut of the claim they got.
I have now done a few claims for a few inventor clients I have who are genuine R & D claims to me as that all they do as have not generated any income yet.
Personally with a bit research they were not bad to do, the book Kent recommends is worth reading. I got decent fees but not on a percentage.
From what i have seen the specialist firms seem to sausage factory them through where they claim lower amounts than they maybe should but they dont raise eyebrows with HMRC.
I would sooner maximise the claim for client and be prepared to explain it if needed.
I do suspect a far few claims have gone through that would not stand much scrutiny if they were looked into.
I'm very much at the cynical end of the spectrum.
R&D is the best way small companies can pay no corporation tax like the Amazons/Googles of this world. I am basically completely against it, it's a farce.
As others have suggested, with UK productivity low, politicians want to be seen to be encouraging innovation and creativity. In reality bog standard businesses with no innovation and no morals are pretending their admin staff spend 50% of their time on R&D, and hence either paying no tax if they're profitable, or getting subsidised when loss making. HMRC are waving them through no doubt under pressure from politicians.
How much corporation tax do you want to pay? You choose. https://www.youtube.com/watch?v=mmR5aun7WqY
Out of curiosity, what are people (practices) charging for R&D claims?
I’ve done 2 at 15%, 1 at £250 fixed and another 2 clients wanted me to give fixed fees. I acknowledge it’s not been a joined-up approach so far ...
15% of what?
I tend to stick with fixed fees based on an estimate of how long the work will take.
As this is specialist work my rate (used to calculate the fee) does tend to be higher.
What are you after the R&D work or a long term client where you do the compliance, business advisory work as well?
If you want the lot then a fixed 'reasonable' fee is (IMO) the better way to go.
I am in the cynical camp here and suspect at least 50% of R&D claims are spurious. See:
https://www.accountingweb.co.uk/tax/business-tax/british-businesses-unlo...
Question for the cynics:
If you don't approve of R&D does that mean you won't do it?
If the client has (or thinks he has) a valid claim it shouldn't matter whether you approve of the legislation or not.
I don't approve of changes to entrepreneurs relief or the flat rate vat scheme. Or the introduction of the 7.5% dividend tax. I still comply with the legislation though.
Rough...smooth...
How do you know they are spurious. Where did you get your 50% figure from. I'd suggest that your 50% figure, having been plucked out of thin air, is what's spurious.
Process is a science. If you can improve a process, you are making a scientific advance. If it took competent professionals an effort to make that improvement, then you have R&D. That is what the BiS guidelines say. End of story.
Kent's underlying point though, is that agents are there to represent the client, and where there is greyness to exercise bias in favour of the client. I think it is a valid point.
Question for the cynics:
If you don't approve of R&D does that mean you won't do it?
If the client has (or thinks he has) a valid claim it shouldn't matter whether you approve of the legislation or not.
Agreed. We will typically just stress that we'll take the figures the R&D "expert" provides as gospel and enter on the relevant tax return(s). We'll also stress that if HMRC have any queries re those figures, the client would need to revert to the R&D bod. We accept no responsibility for those figures.
To my annoyance all have gone through without issue, leading to some very plain vanilla profitable companies paying no corporation tax, and some very plain vanilla unprofitable companies getting big sums of cash from HMRC to subsidise their rubbish loss making business.
It will end up like every other tax relief/advantage. Once everyone starts abusing it like the flat rate or low salary and high dividends, EBTs the government will either get rid or restrict the relief.
I hope it is done sooner rather than later, that way these 'specialist firms' will have to find another area to 'specialise in'.
It will end up like every other tax relief/advantage. Once everyone starts abusing it like the flat rate or low salary and high dividends, EBTs the government will either get rid or restrict the relief.
I hope it is done sooner rather than later, that way these 'specialist firms' will have to find another area to 'specialise in'.
Indeed. Political rhetoric will change from:
"Innovative UK firms leading the way in new technologies." to
"Disgraceful tax avoidance encouraged by disreputable professionals."
...yet politicians will just replace it with yet more very grey messy legislation.
I'm unsure just how cynical to be. The really cynical part of me thinks politicians/HMRC deliberately create these "loopholes", tell their mates to fill their boots. Their mates do. Then gradually over many years the rest of the population slowly catches on and starts doing it too. It's then no longer just the mates of those in power benefiting, it's everyone, oh the disgusting abuse by the masses! So it's scrapped, and a similar new loophole is created, again with quiet whispers to their mates that this is the new way to not pay tax. This repeats.
This is why the legal profession has much more luck than our own.
Any tax saving scheme (genuine or dodgy) ultimately costs the treasury money, so tend to be fairly quickly closed down ( apart from the ones the Tories are heavily into).
Any scheme that comes to the legal profession ultimately costs big business money, who can afford it so lawyers make a fortune from it, PPI, White finger, Injury claims etc. As these schemes seem to run their course to completion, as they close down a fresh opportunity appears. GDPR is being billed as the next PPI before it has even started.
Well cynics this should have you choking on your prawn sandwiches...
https://www.accountingweb.co.uk/community/industry-insights/rd-industria...