Ignorance isn’t necessarily bliss – in the case of R&D Tax Credits, it can prove to be very expensive!
“All companies can claim R&D Tax Credits”
No – if you are a limited company incurring expense on developing new products, technology or processes, you may be eligible. It is not sector or technology specific, and companies across a broad range of industries are already successfully claiming.
But you have to meet HMRC criteria.
HMRC defines R&D as work that achieves a scientific or technological advance when scientific or technological uncertainty exists.
This can include:
- achieving an increase in overall scientific or technological knowledge or capability.
- significantly improving products, processes, materials or services through scientific or technological development.
- using science or technology to duplicate the effect of an existing product or process in a new or appreciably improved way.
“95% companies aren’t claiming”
No – whilst there are undoubtedly new start-ups who are unaware of the R&D Tax Credits scheme, and established companies who are still getting the wrong advice from their advisors, the numbers of SMEs claiming R&D Tax Credits continues to grow each year, reaching nearly 43,000 in 2015-16.
Interim figures for 2016-17 suggest that this upward trend will continue.
The issue here is about claim quality – many companies are not optimising their claims due to a lack of knowledge and expertise when identifying and costing qualifying projects.
“It is a very lightly regulated scheme”
No – this growth in claims has led to increased scrutiny by HMRC to ensure claims are accurate and compliant and that companies are not abusing the system.
Certain types of claim are now being categorised as high-risk and especially those which are high value. Software claims, in particular, have been identified for more detailed review, with HMRC strengthening its expertise in this field.
Understanding what a high-risk claim is and how best to deal with it requires experience and a sound methodology. The rules can be complex – for example, how to deal with Externally Provided Workers (EPW) costs related to connected companies, or how double taxation relief affects a R&D claim.
Therefore, clients aren’t just ‘buying’ a claim, they are buying ‘claim quality’ – achieving this means that an advisor must have deep technical knowledge and a rigorous quality process.
“Making a claim is straightforward”
No – if you want to minimise the risk of a HMRC enquiry.
If you’re already making claims and never had an enquiry yet, it’s because HMRC have limited resources and allocate them on a perceived tax risk basis. That doesn’t mean you are never going to get one. An enquiry also becomes more likely if your claims have gone unexamined for a long period.
However, you can minimise the risk of an enquiry by how you present your claim.
If you show that you know the rules, have applied them, and make it easy for HMRC to appreciate this, your claim is less likely to be selected for detailed scrutiny.
Things that you should highlight include awareness of the BIS guidelines and that you’ve framed your claim in line with them.
“My accountant already has it sorted”
Not always – there tends to be an automatic assumption by many companies that R&D Tax Credit claims are best handled by their accountant who can do the numbers while they provide the technical input. However, it is not just technical knowledge that is required, it is also an in-depth understanding of what potential R&D activity may or may not fit within the context of the scheme legislation.
Claims prepared without this expertise can often result in a lot of the work having to be undertaken by the company, rather than its advisor, and a resulting claim that may be limited or inaccurate/non-compliant in its findings, followed by a hefty bill from the advisor!
HMRC can claw back ineligible claims for previous years, so whilst the probability of being audited may be quite low, is it worth the risk when there are better and more profitable solutions available? Furthermore, this process creates ‘grey areas’ around responsibility and accountability for the claim.
“All R&D specialists are basically the same”
No – some companies do use ‘specialists’ to undertake their claims. However, many of these ‘specialists’ apply a similar accounting-based process which again relies on the company for the technical element. They add little value to the process.
Access to highly qualified technicians with experience in the client’s technology, who possess a thorough knowledge of the R&D Tax Credit legislation and work in tandem with financial experts, will deliver a far more attractive output that is:
- Optimised in terms of claim value
- Fully compliant and defendable by the advisor, not the client
- Time efficient
- Cost effective
- Complementary to the company’s accountant’s activities
All Specialists are not the same – MSC R&D delivers the total solution.
Contact us on 0114 230 8401