HMRC’s Tenacious Auditing Separates Good R&D Advisors From Bad Ones
HMRC are extremely adept at spotting errors in R&D Tax Credits claims, however innocent. Make sure your clients aren’t caught out.
Competent, experienced R&D tax professionals make all the difference
Whether your client is brand new to R&D Tax Credit claiming or they’ve benefitted many times before, taking the right professional advice is essential.
The R&D Tax Credit claims process is complicated, time-consuming and often stressful. HMRC are extremely hot on finding any errors too and - innocent or not - the penalties can be harsh. Additionally, it’s easy to under-claim simply due to awareness around what costs will qualify.
Case Study: Hadee Engineering Co Ltd v HMRC
This is an ongoing case involving an engineering company in the north of England. Although this is an incredibly brief synopsis, it serves to illustrate why professional R&D tax relief support is so vital.
Essentially, if a company has carried out research and development (R&D) activities, it can claim an additional tax deduction. If a loss is created, then a refund can be claimed from HMRC.
Hadee Engineering submitted a claim under RDEC relating to its 2009 and 2010 accounting periods. HMRC was subsequently dissatisfied with various elements of the claim and in 2010 launched an enquiry under its COP9 (Civil Investigation into cases of Suspected Serious Fraud). By 2017 the case was still rumbling on, so Hadee applied for a Closure Notice citing that the enquiry had been prolonged unduly and that the company had no more information to give.
Various information requests were later sent to Hadee as well as various third parties. However, HMRC determined that it didn’t have enough information from the company to demonstrate that it has been involved sufficiently in R&D. HMRC then issued a closure notice, presumably denying R&D relief. The case continues.
So how does a good R&D tax advisor ensure any HMRC issues are avoided?
As the above case study shows, HMRC will come down hard on claimants where it determines there has been some discrepancy. This is the last thing companies need, as it’s expensive (monies will usually need to be paid back, on top of a fine) and often drawn out. It can also damage the company’s reputation.
This is why it’s so important that R&D Tax Credits claimants don’t go it alone, or take advice from spurious sources. Experienced, competent R&D tax relief specialists really are the only way forward with this.
A good R&D tax advisor is worth their weight in gold, dealing solely in R&D funding and tax reliefs. They will therefore be highly adept in their field, understanding where the pitfalls lie and how to avoid making any mistakes.
How does the Myriad Associates methodology work in preventing problems?
When you work with Myriad Associates on your client’s R&D tax relief claim, we’ll go through a very specific process to ensure a high-quality application that stands up to HMRC scrutiny.
Myriad advisors follow these key steps which make up our methodology:
1. Schedule of Qualifying Projects (SoQP)
This is where we list all of the qualifying R&D projects that have occurred in the accounting period. Each one will have a description and business case, plus we will bullet point all of the technical and/or scientific challenges and uncertainties that were addressed.
2. The Costing Schedule
Here, all of the costs as per the SoQP are listed. These include staff, sub-contractor and external worker costs, as well as consumable and software costs and other relevant expenditure as applicable.
3. The Technical Report
This is the next part, and is a crucial step in putting the claim today. Here we include answers to questions including:
- What was the project aiming to achieve?
- What were the technological challenges or uncertainties faced by your R&D team at the start of the project (or at the start of the accounting period if the project began earlier)?
- What was the current “state of the art”? For example, what existing technologies or third party products were considered as possible solutions to these challenges and uncertainties, but were rejected as unsuitable, and why?
- What were the steps taken during this accounting period to address the challenges and uncertainties?
- What, if any, technological challenges or uncertainties had still not been resolved by the end of the period?
- What development tools were used and what records were kept by the development team?
- Who were the key members of the development team and what are their relevant qualifications and experiences?
Claiming for more than one project
Claims that cover one to three projects need to detail each project separately. For four or more projects, detailed descriptions must be provided on at least three projects (to a maximum of ten) which between them cover 50% or more of the company’s total eligible R&D costs.
If your client has carried out more than ten R&D projects covering 50% or more of their eligible costs, they need to email HMRC ([email protected]) before submitting their claim.
Why accountants should work alongside us
We have almost two decades of experience in this field, and have worked with a huge range of companies - and company accountants - on successful R&D Tax Credit claims over the years.
The fact is that HMRC will often come back with questions, sometimes merely as part of their spot checking process. However, our due diligence means they very rarely come back with any further enquiries, but if they do then we will deal with them on your client’s behalf too.
When completing an R&D Tax Credit claim, companies need to translate their sophisticated R&D activities into language HMRC officers will understand. This is a very niche skill, and something even the most competent of business accountants can struggle with.
Our team will sit down with your clients and their teams to fully understand their R&D projects before producing a water-tight application that justifies and expedites their claim. It also frees up your time and resource to get on with everything else.
Still not convinced? We’ve written two recent articles on this subject which you may find useful:
- 5 Excellent Reasons To Work With An R&D Tax Relief Consultancy
- How Myriad Associates Can Work With Both Clients And Their Accountants Remotely
Don’t risk your clients’ time, resources and reputation
Get in touch with our expert team on 0207 118 6045 or send us a message and one of us will call you back. With many businesses struggling with the economic fallout of COVID-19, don’t let your clients miss out on what could easily be thousands of pounds of extra cash.
Find out how you can work alongside the Myriad team today.