WhisperClaims: Taking the complexity out of R&D claims
R&D tax claims could be a substantial new income stream for your practice, but the time and complexity involved puts many off. In our mission to help accountants grow and expand into new areas, we sat down with Mike Dean, Managing Director at WhisperClaims to get the truth about R&D.
Between 2000, when the UK Government started offering R&D tax relief and 2019, SMEs made over 300,000 claims - totalling £33.3 billion in tax relief. Putting this money back into businesses is of course, to stimulate innovation and subsequently economic growth, something the country needs now more than ever.
Reticent to file R&D tax claims? You’re not alone.
If you’ve looked into the eligibility requirements and process behind submitting an R&D tax claim, you’d be forgiven for leaving them to the specialists. The guidance for the scheme runs to 500 pages and Mike Dean tells us one claim can take months from beginning to end using traditional methods.
This has led to a market of R&D tax specialists who often charge expensive contingent fees on success. And who are their clients? They’re your clients.
WhisperClaims - giving R&D back to accountants
In 2017, Mike and a group of fellow R&D tax experts put their heads together. They not only wanted to eliminate the time and complexity of producing a claim, but give accountants a way to bring R&D tax claims in-house and add it to their service offering.
WhisperClaims launched in 2018 and in just two years has handled over £100 million of eligible spend. “That's eligible spend identified by the software, which equates to around £25m in tax benefits” says Mike. “So all of that value has been delivered by our accountant users to their clients.”
Recently WhisperClaims won Best Non-Accounting Cloud or Banking App at 2020’s Accounting Excellence Software Awards in recognition of their contribution to the accounting market, adding to wins at the UK Business Tech Awards and Scottish Accountancy & Fintech Awards.
Biggest claim? £7 million
“We’re working with 120 subscription customers and have around 65 - 85 claims going through a month” Mike tells us. “Our average claim is around £100k of eligible spend. Having said that, the biggest claim to date was for £7 million and we've had a handful go through that were £5 million plus. The majority of our claims are at about the £50k eligible spend level, which is representative of the HMRC stats, where around 70% of all claims made are under £50k. As an accountant you are most likely to be dealing with claims of this size, as that’s representative of the market.”
R&D claims: Eligibility, advisory and meat pies
“It’s all to do with structure - and understanding what HMRC is looking for,” begins Mike. “So that’s the basis we've built our software on, to take our users through a highly structured journey where the individual questions are all very simple to answer in their own right, and the software takes care of the complexity. Added to that, the output from the software is a written report that looks and feels like it’s been produced by a consultant, yet in reality you’ve been able to produce it with a single button press straight after your client meeting - no need to face the pain of report writing again!”
Instead of answering hundreds of questions, that may or may not relate to your client’s claim, you only answer the relevant ones. “We refer to it as an adaptive question set. So the answer you give will determine what you get asked next. A bit like a decision tree. All of the complexity of the scheme and questions about technology and fields of science are all addressed as you work through.”
Months? More like minutes.
“A normal R&D tax claim takes anywhere from weeks to months.” Mike explains. “That tends to be all the time toing and froing between the consultant and the client and researching all these points in the legislation…”
The majority of our claims from first data entry to a fully written report ready for HMRC - are done in an hour.”
“We've taken that process and compressed it into more or less an hour. Obviously we use our own software to do our own R&D claim. That takes us about 20 minutes!”
Built-in screening check
WhisperClaims allows you to go through these questions at a high level and check the eligibility of a potential claim before you go too deep into the process. “A lot of our customers use it as a quick and dirty screening tool.”
It's actually giving you an excuse to go through a diagnostic process and understand a bit more about your client”
“So, in their regular conversations with clients where they suspect they might be eligible, accountants can spend 20 minutes using the front end of our software to say, is there anything here worth pursuing? If there is, then you’ve got the opportunity to spend a little more time with them on properly developing a claim. Because we charge for our reports on download, you are essentially able screen your clients at no risk - you won’t pay unless there’s a claim to be made.”
Mike tells us many businesses are turned down by R&D specialists and told their idea isn’t eligible - when that’s not strictly true. “The majority of the consultants out there have a very high cost base. So, of course, they're chasing larger claims. The bigger the claim, the more likely they are to cover their costs and generate a margin. They're not always interested in small stuff and it's far easier to say you're not eligible than it is to explain. That's another driver for us doing what we've done. Our software is designed to cater for any claim size, no matter how small it is. In fact, the smallest claim made to date was just £1k of eligible spend, or around £250 in tax benefit!”
Identifying eligible R&D claims
Lately the R&D tax scheme has gained a reputation for being abused, with the Government seeing an increase in low-quality claims. With this renewed focus on maximising the amount of eligible work going through, we asked Mike what to keep an eye out for.
Looking beyond the obvious sectors
“On the one hand, you've got sectors that spring to mind - like engineering, manufacturing, technology - if you've got clients in those sectors there’s potential for eligibility in there. But eligibility can also be in other sectors. Some areas that seem to be hot at the moment are dentistry and hospitality. Once you're into those less obvious sectors, it becomes much more tricky to recognise properly eligible activity.”
Scientific advancement and meat pies
“Now, food and drink for example, that’s quite a challenging area. Say you're making steak and kidney pies and you come up with a recipe for steak and onion pies - there's never going to be any eligibility in that because there’s no advance in science and technology involved in a recipe change.”
...steak and onion pies - there's never going to be any eligibility in that because there’s no advance in science and technology involved in a recipe change.”
“However, if you’re making meat pies and you want to get into vegan pies that taste the same, that's going to represent some fairly significant challenges around raw materials. You might need to develop new ingredients based on soy protein or similar. There's much more likely to be some scientific advancement involved in that.”
Training on R&D and ‘edge’ cases
WhisperClaims is entirely for accountants, quite simply because Mike and his team want to drive up the number of good-quality, eligible claims. “As professionals, accountants have professional standards that are accredited. There's a reason for them to remain compliant with HMRC rules and regulations.”
This also means that all their training and webinars are targeted at helping accountants understand the scheme and the context around using the software. As well as free webinars, WhisperClaims offers a paid-for training course. “It's called The Fundamentals of the UK R&D tax scheme,” explains Mike. “So it's got nothing to do with our software. It's about bringing our users up to scratch on the scheme itself.”
How are accountants offering and charging for R&D claims?
Many SME accountancy practices are starting to transition from just compliance to offer more advisory services. “R&D tax claims are, of course, going to open up potential additional revenue,” says Mike. “We see ourselves as an important stepping stone in that direction, because we've got this consultative process built into a highly structured framework.”
SME accountants - Mike’s favourite clients
Like AccountancyManager, Mike loves working with SME accountants, largely due to their mindset. “We’ve got some big firms as clients - a top 30 firm is our biggest firm - but interestingly enough, they're not our biggest customer. Our hardcore customer base is actually a small firm. So 50 or fewer staff. Why are they great clients for us? They tend to have a growth mindset. They're looking to grow the firm. They're looking for new revenue opportunities. They’re willing to get out there and have a go with a new service.”
Success contingent, fixed fee or bundled up?
Traditionally, R&D claims have always been priced on the basis of a contingent success fee. As a result of using WhisperClaims, accountants are finding it easier to offer R&D claims and advice on a fixed fee basis. “They're able to do that because the work has become much more controllable. You know how long it's going to take,” says Mike. “That's transformational as far as the end clients are concerned, they’re able to retain and maximise the value they get him from any tax benefit and for the accountants that still means some quite chunky fee income, and a great return on their investment.”
“We do see accountants who effectively give the service away, bundled with other things. So we have the extremes in the R&D tax market of people charging 30% contingent fees at one end to other people actually giving it away as a bundle of other services at the other end. The sweet spot right now is somewhere in between and we are increasingly seeing accountants win work on a fixed fee basis ”
A service with clear monetary value for clients
It’s often hard for accountants to prove value and justify costs, especially when it comes to advisory services. With R&D tax claims, Mike explains, there’s demonstrable value. “R&D tax claims are one of the few areas where the accountant is able to talk to their clients about an upside rather than a cost. Anything that mitigates their tax bill or turns into a cash repayment for their clients, has to be good news in that conversation.”
Mike ends by adding that the software utilises the customers brand. “Which means, to your client, it looks like an integral part of your service offering. It's all about accountants positioning this service as their own. They're in control of the relationship with the client. That is another important aspect of what we're doing here”.
“We’re always really happy to walk accountants through a demo of the software. It’s a great feeling to see them get to the “wow” moment in our demos where they realise that time consuming, complex report writing is a thing of the past!”