Are There Any Risks In Submitting An R&D Tax Relief Claim?
R&D tax relief can provide a very lucrative source of finance for UK companies engaged in research and development. Whether a company has developed a new product, process or service or modified an existing one, the government has for some time offered a generous tax relief to help with the costs - namely R&D Tax Credits.
Although it’s a welcome scheme for many and the benefits can be large, any errors on an R&D tax relief claim can have huge and negative repercussions. Not only can it mean souring relations with HMRC, but it can even damage the reputation of your client’s company too. So to help put the record straight, we’ve looked at some ways to reduce the risks of getting your client’s claim wrong, and why it’s highly recommended you work in collaboration with R&D specialists like us.
To start off, what are the common mistakes people make on their R&D tax relief claim?
Myriad Associates (owners of Tax Cloud UK) have two decades’ experience in dealing with R&D tax relief so there’s not much we don’t know. In our experience, there are some key things that many people misjudge, which can lead to HMRC rejecting a claim. Broadly speaking, these are:
- Including costs that don’t actually qualify
Typical examples of these include business rates, rent, company credit cards, manufacturing downtime costs, benefits in kind and materials which were later sold on. HMRC can spot these a mile off.
- Not fully understanding where the boundaries lie
It’s not unheard of that whole projects have been included in an R&D Tax Credits claim, even though only part of the project is actually eligible. This looks bad to HMRC who will reject the claim.
- Including projects that were never eligible in the first place
This one is probably one of the most common. Remember, the claim should only include costs relating to advances in science or technology and nothing else.
If HMRC detects one of these mistakes (and they very likely will) they may start asking questions which can slow up your client’s claim at best. At worst, they might decide to launch a wider investigation into their tax affairs - expensive, stressful and far best avoided.
What are the chances of getting an application wrong and how can the risk be mitigated?
Apart from wasting time and money, mistakes in a claim can have some pretty stressful (and expensive) results. Even as an experienced accountant, it’s easy to succumb to one of the many pitfalls.
Even apparently simple claims can quickly become difficult to handle. Frankly there’s too much at stake to not get it right first time; after all, you wouldn’t ask a car mechanic to fix your fridge, so why would R&D tax be any different? We can’t stress enough how important it is to work with R&D tax relief experts such as ourselves.
What do R&D tax relief consultancies actually do?
R&D tax relief consultancies like us will effectively ‘health check’ a client’s claim and work with you to make sure everything is accurate. The process of claiming involves several parts, mainly creating a top spec narrative and supplying accurate figures. The onus is on your client to not only provide the accountancy data for their project, but also to explain what the project was and why they believe it qualifies. Working with us will ease this process, and help you feel reassured that you’re providing correct, up-to-date advice.
I’m a qualified accountant - why would I need to work with an R&D tax specialist?
R&D tax relief is incredibly niche. Whilst as a highly qualified and experienced business accountant you will no doubt have a wealth of related knowledge, working alongside a specialist R&D team has a number of benefits.
Firstly, R&D tax relief is subject to regular changes in government guidance and there’s a large number of grey areas. It’s incredibly easy – even for the most experienced of accountants – to miss off a relevant cost or include costs which aren’t eligible.
Secondly, under-claiming is also a big risk. Although it’s easy to equate under-claiming with simply playing it safe, it’s actually a sure fire way for your client to be short changed. With eligible R&D costs attracting a relief of up to 33p in every £1 spent, claims can quickly mount up into the thousands. So even missing off one or two relevant costs could easily mean your client misses out on some serious money.
How does the R&D Tax Credits scheme work?
R&D Tax Credits act as an incentive for companies to innovate and grow in order to boost the economy. It’s open to all UK companies in any sector (and of any size) and a huge number of project types are eligible. As long as a risk has been taken in making a scientific or technological advancement - either by developing a new product, process or service or by reinventing a new one - then the project is likely to be accepted.
The relief is offered as a reduction in a company’s Corporation Tax bill (if the company is making a profit) or as a cash lump sum payment if the company has made a loss. The amount payable depends largely on the company’s size and whether it has previously received state aid, and money gained can be spent as the organisation sees fit.
More information can be found on our R&D Tax Credits page.
How Myriad Associates and the Tax Cloud portal work with you and your clients
We work only in R&D tax relief and nothing else. We’re not interested in enticing your clients away from you or working on any other accounting tasks - we simply want to work alongside you in offering the most accurate, professional R&D tax claim possible. Our Tax Cloud portal was also developed with an area specifically for accountants, helping you work out what your client could receive and navigating you through the process.
Call us today on 0207 118 6045 or use our contact page so we can get you started.