Have You Advised Your Client Correctly About R&D Tax Credits? Mistakes Are Easy To Make
Research and development (R&D) Tax Credits are a highly lucrative tax incentive offered by the UK government and can be worth thousands, or tens of thousands, of pounds. But how confident do you feel in understanding all the minutiae in how to claim successfully? Are you up to date with all the latest R&D legislation to inform your client correctly, confident that HMRC won’t come back to bite them (or you)?
This is where it’s highly recommended that you work alongside experienced R&D tax relief professionals such as ourselves. We can guide you through the claims process and answer any questions along the way, so you know you’re offering your clients the best service possible.
First off, a quick run-down on R&D Tax Credits
R&D Tax Credits began life in the year 2000 with the purpose of fuelling growth and rewarding innovation. They are designed to reward UK companies for making an investment in innovation that addresses a specific technological or scientific uncertainty. They offer a vital financial lifeline for many businesses, with the benefit helping to accelerate R&D programmes, take on more staff and ultimately expand.
How do R&D Tax Credits work?
R&D can occur in any industry or sector. Companies that have spent money on developing new products, processes or services, or enhancing existing ones, are likely to qualify for R&D tax relief with no upper or lower limit. A successful R&D Tax Credit claim can result in either a reduction in your client’s Corporation Tax liability, or a cash payment. The scope for identifying R&D is massive and exists just about anywhere. Plus, claims can still be made even if the R&D work occurred a while ago, as the last two completed accounting periods can be taken into consideration.
In order to take advantage of R&D Tax Credits, businesses must:
- Be a UK limited company
- Be subject to Corporation Tax
- Have spent money on eligible research and development projects
How much can be claimed?
As a rough guide, small and medium sized companies (SMEs) are able to claim up to 33 pence for every £1 spent on eligible R&D work. We’ve found average claims are often in excess of £50,000.
Larger companies are able to claw back up to 10 pence for every £1 spent on applicable R&D projects. Average claims for bigger companies obviously tend to be higher - we’ve often seen them in excess of £300,000.
If you’re a business accountant and believe one of your clients may be eligible for R&D Tax Credits, you can find out more on our R&D Tax Credits page.
So how are mistakes made?
The big thing to take on board about R&D Tax Credit claims is that the application process is rather draconian. It’s long winded, time consuming and often confusing, even to the most experienced of tax professionals.
Over our years in businesses, we’ve come across situations where accountants have filed a claim on behalf of a client, believing they knew what they were doing, but somehow actually ending up with clients paying even more tax than if they hadn’t bothered! Not good, although thankfully this is pretty extreme.
The good news is that if accountants do make an error, then clients have until the second anniversary of the end of the tax period for the mistake to be corrected. Although it can lead to a rather red face.
What are the most common mistakes?
- Not accurately accounting for staff costs
- Claiming under the SME scheme when it should be under RDEC, or vice versa
- Staff costs ending up being more the actual salary cost
- Not including ERs pension and ERs NI contributions in an application
- Not treating Externally Provided Workers and Sub-contractors costs correctly
- Unreasonable or incorrect R&D time apportionments made for staff members
- Various other costs allocated incorrectly
- Failing to include reimbursed out of pocket travel expenses relating to R&D work
- Connected subcontractors or staff providers valued incorrectly
- 65% apportionment not made accurately
- Forgetting to include, or wrongly including, material costs and consumables
- Inconsistencies when applying Employers NI allowance
- Overseas subcontractors not being included, or included but not correctly accounted for
- Incorrectly treating an employee as a subcontractor, and vice versa
- Grant funding has been reported incorrectly, meaning that a claim is made under the SME Scheme when the RDEC scheme should have been used instead
- Working as a Subcontractor for a larger organisation when the type of work being carried out, and the contract it’s completed under, would not be classed as Subcontracting
Although most claims for R&D Tax Credits are made by SMEs using the more generous SME scheme, if any state-funded grants have been awarded then the only way to apply will be using the RDEC scheme. We can advise on the differences between the two.
Any costs covered by grants are eligible for RDEC, and you don’t need to deduct the value of the grant from the R&D expenditure your client incurred. Not all grants will affect your client’s eligibility to apply for the benefit using the SME scheme - again this is something we can advise on.
In summary, mistakes are easy to make but it’s essential you put them right as quickly as possible or your client is likely to end up seriously out of pocket. Fortunately, R&D tax relief applications can be submitted up until the second anniversary of the end of the tax period during which the R&D took place. This applies to both new claims, and amendments to existing ones.
Are you a business accountant looking to see if your client could be owed R&D tax relief?
The rules around R&D Tax Credit qualification are often changing and the process itself is notoriously challenging. Myriad Associates is a team of skilled R&D tax relief professionals; we don’t provide any other type of accountancy service, just R&D. We offer a fast, professional service to both accountants and businesses alike, giving peace of mind when it comes to dealing with the intricacies of R&D tax relief claims. Not only does this provide your client with the best chance of success, it means they can maximise their benefit too - so you can get on with all their other accountancy needs.
Get in touch with us today
Let us help you to help your clients with their R&D Tax Credit claim. Call us today on 0207 118 6045 or use our contact page.