My Client is Looking to Submit an R&D Tax Credit Claim. What Are the Risks?
Claiming R&D Tax Credits is a complex process, and there are some inherent risks. But the Tax Cloud portal means those risks can be mitigated.
Recognising and avoiding the common mistakes
It’s been a long hard year of on/off COVID-19 restrictions bringing huge economic anxiety to businesses large and small. But R&D Tax Credits have long proven to be a lucrative source of extra cash for innovative companies engaging in technological or scientific research.
Consider your own clients. Have any of their companies developed a new product or service recently, or modified an existing one? If so, they may well be eligible for R&D tax relief.
Although the R&D Tax Credits scheme is incredibly generous and largely very welcome, the application process is notoriously complex. Any errors can have huge and damaging repercussions on a company’s finances and reputation - not to mention souring their relationship with HMRC. So to help, we’ve looked at where the risks really are in applying for R&D Tax Credits, and how the Tax Cloud portal can help to avoid them.
How does the R&D Tax Credits scheme work?
R&D Tax Credits work as an incentive to help UK companies innovate and grow by covering a large percentage of the costs. All UK businesses in all industries can apply, regardless of profitability or size.
A huge range of projects and costs can be included, with as much as 33 pence in every £1 of eligible expenditure reclaimable (it’s generous!)
Providing a financial risk has been taken in advancing some form of science of technology - for example, developing a new product or service or upgrading an existing one - then the project will likely qualify.
The relief is administered as a credit against a company’s Corporation Tax liability. If the company made a loss, it can receive cash instalments instead. In either case, the resultant financial boost can be spent exactly as the company sees fit.
To familiarise yourself more with the scheme, our R&D Tax Credits page has all the details.
Recognising the common mistakes when claiming R&D Tax Credits
Myriad Associates (the R&D tax professionals behind the Tax Cloud) have two decades’ experience R&D Tax Credit claims. During this time, certain common mistakes repeatedly crop up, which can mean HMRC rejects a claim or, even worse, launches an investigation. So it’s important to know where these mistakes occur, so they can be avoided.
Claiming for projects that aren’t eligible
This one is probably one of the most common. But the beauty of the Tax Cloud portal is that you/your clients enter details of the project right at the start. It’s then assessed by one of our specialists who will deem it eligible (or not). So right from the outside it’s clear whether a project actually qualifies, so no wasted time or resource. Remember, only projects that make a scientific or technological advancement in some way should be claimed for.
Including ineligible costs
The costs that can be included in an R&D Tax Credit claim are many and varied but caution must still be applied. Examples of ineligible costs include benefits in kind, business rates, manufacturing downtime and materials which were later sold on. Again, by using the Tax Cloud portal these errors can be weeded out early on.
Not understanding where the limits of an application lie
Sometimes only parts of a project will qualify for R&D Tax Credits. Yet a common mistake is for the whole project to be included in an R&D Tax Credits claim, which doesn’t go down well with HMRC. The claim will be rejected and the whole thing becomes a frustrating waste of time and money.
Again, the Tax Cloud is ideal for avoiding this as our experts will be able to help correctly apportion both the project itself and their costs.
What are the chances of making a mistake in an R&D Tax Credits application and how can the risks be reduced?
Apart from being a substantial waste of time, effort and resource, mistakes can delay a claim or mean that it’s rejected altogether. So no tax relief. It’s a highly specialised area of accounting, and even the most apparently straight-forward claims can quickly turn into a nightmare.
I’m a fully qualified, experienced accountant - why would I need R&D tax help?
Quite frankly, not getting it right the first time puts far too much at stake. We can’t emphasise enough how complex R&D Tax Credit claims can be, and how each one is unique. That’s why the Tax Cloud portal is so valuable; it takes away the guesswork.
R&D tax relief is extremely niche. Whilst accountants will likely have some knowledge or experience in this area, collaborating with a specialist R&D team brings several benefits. These are two of the most important ones:
Firstly, the rules around R&D Tax Credits are updated often, and there are many grey areas. Even for the most experienced of accountants, it’s easy to not have the most up-to-date guidance at hand. This means a cost could be included that actually isn’t eligible at all.
Secondly, under-claiming is just as bad. Whilst it’s tempting to ‘play it safe’ with an R&D Tax Credit claim, in fact, your client will likely end up short-changed. As the relief is so valuable, any missed costs can quickly mount up. It’s money your client is rightfully owed, so risking them missing out on it is not a great move.
How Myriad Associates and the Tax Cloud portal work with you and your clients
The Myriad Associates team works only in R&D tax reliefs, grants and funding. We don’t deal in any other area of general business accountancy and it’s an area we’re highly specialised in.
The Tax Cloud portal itself was created with a specific section for accountants. Once logged on, you can enter your clients own figures and project details, generating a watertight claim on their behalf that’s supported by us. Not only does this ensure your clients achieve the award they deserve, but it also has huge benefits for your own practice.
Your clients could be entitled to a sizeable cash injection they never knew existed.