R&D specialist vs RD software: Which is better? (blog)
The Research & Development (R&D) tax relief scheme has been rewarding innovative businesses for over 20 years. For most of that time, many qualifying businesses weren’t aware of the available incentive, and it’s been up to the industry professionals to spread the word.
However, that’s now changed. Companies are much more informed about the process, and the focus has shifted from asking the question: what is the scheme? To: how can I get the most out of my claims?
This has led to businesses actively looking to their accountants for advice and how they can get the largest benefit possible. But what can accountants do if they don’t have experience in submitting R&D claims?
The options
There are two main options: utilise an R&D software or an experienced R&D provider.
Firstly, let’s explore R&D tax software. The platforms enable accountants to input and submit their clients’ claims on their behalf, with ease. These tend to be fully automated, enabling you to reduce your time on submitting claims, compared to doing it manually.
The software guides you through the content required for making a successful application and creates an HMRC-compliant report by completing stages such as multiple-choice questions.
On the other hand, R&D specialists are a team of expert advisers that will handle the complete process for you. With years of experience, they know the scheme inside out and will work in partnership with accountants to get the most out of their clients’ claims.
Their teams tend to consist of a wide range of experts, including tax, accountancy and industry professionals, so they will understand the application, no matter how unique the sector or project. Also, they will regularly work with HMRC so will be up-to-date and comply with the latest legislation.
R&D Software Vs Provider: The Comparison
Cost
Most R&D platforms offer monthly subscriptions, which then require a further cost to download the report. For example, a leading software provider has a monthly fee starting from £100 and around £600 for accessing the report.
Other platforms charge a flat fee for claims processed by HMRC, which tends to be in the region of 5%.
In comparison, reputable R&D providers don’t charge accountants for submitting their clients’ claims. They tend to work on a no-win-no-fee basis and will take a certain percentage of the benefit once the claim is complete – this typically is anywhere between [20-30%].
What’s more, R&D providers offer commissions to their accountant partners for successfully referred clients. This can become a lucrative alternative revenue stream for many firms, without any additional work required. They can also surrender that “introducer fee” for a charitable donation or they can choose to offset it against their current client fee’s. There’s a way for everybody to win.
Winner: R&D provider – free for you to use and enables you to create an alternative revenue stream for your firm!
Liability
As you’re most probably aware, there has been significant scrutiny of the R&D scheme over the past 12 months. This is due to HMRC clamping down on fraudulent claims as it estimates over £469 million worth of benefits were wrongly processed.
To avoid this from happening in the future, HMRC has created a number of new rules that come into play from April 2023 – a full breakdown of the new changes can be read here.
In addition to amendments to the type of expenditure, you can claim for and how much you can receive, there’s been more responsibility placed on the professional submitting the application. The accountant who wrote the report will now be required to put their personal name on it - not simply the practice name - and will be answerable for any incorrect information that is included.
As reports created through R&D software are made by the accountant, they will be personally responsible for what is included in the claim.
On the other hand, when an R&D provider handles your clients' claims, they will be held accountable. Should the claim go to an HMRC investigation, they will also be responsible for explaining the content.
Furthermore, any reputable providers will have insurance to cover any investigations. This means that you or your client won’t have to fund the process, which can otherwise be lengthy, tiring and most importantly expensive.
Winner: R&D provider – They will take responsibility for the claim
Experience
Previously, software was a good option for accountants inexperienced in R&D claims. Many of the R&D software platforms provide educational pieces to help navigate their software and submit claims. For example, they provide automatic calculations for working out claim figures or multiple-choice questions for building a report.
Although the software would help you answer pre-defined questions, it didn’t tell you what the assessors are looking for. This can be the difference between a good and a great R&D application!
However, the main setback for software has now come about due to the legislation changes mentioned in the above point. As part of the new amendments, all R&D claims will need to be submitted digitally and contain a comprehensive report that includes:
Information on the existing industry knowledge before the project started.
An outline of the project and the qualifying activities.
Evidence for scientific or technological advancement.
The uncertainties faced, and how they were overcome.
An analysis of qualifying costs.
However, from April 2023, software users will now have to add additional details to what it provides in order to meet HMRC’s requirements.
This means you will have to become much more experienced in writing project descriptions and using HMRC’s terminology, which can be much harder than it seems.
On the other hand, R&D providers have years of experience writing and submitting R&D claims. They will take complete control of the application for you, so no prior experience with the correct terminology or writing applications is required.
Winner: R&D provider – no prior experience with R&D claims is needed.
Control
With the R&D software, the claim process will be completely controlled by your team. You will be able to see where the claim is up to and have control over when information is sent to HMRC. Although, it is your responsibility for ensuring claim applications are inputted and submitted before your clients' year ends to avoid missing out on any qualifying expenditure.
Most softwares also integrate with your existing accountancy platforms to enable you to identify and control which expenses should be included.
When using R&D providers, you hand the control over to them. They will handle the complete case from speaking with your client to writing the application and submitting it. Good providers should provide a transparent process and keep you up to date throughout the claim journey.
Winner: Software – you have complete control over the timings and process.
Time
As mentioned, the software requires you to input all the details yourself. Although some platforms claim for this to be just a few hours, this won’t include the entire process, such as extracting the right information from your clients and writing the complete report.
Also, a question to ask yourself is, is this time well spent? Could your time be focused on other areas where you can add value to your clients?
Using R&D providers will take up minimal time, as all they require is the introduction to your client and their team will take care of the rest.
Winner: R&D provider – minimal input from you!
Maximising claims
As with all software, there are limitations. Although platforms claim to maximise claims, they are only able to work with the information that is given to them.
On the other hand, R&D providers have years of experience working with the R&D tax relief scheme and can easily extract information from clients to identify areas where they haven’t thought about claiming.
The specialists are also able to recommend other incentives clients should be claiming to complement their R&D activity, such as capital allowance claims for loss-making companies (more on that in this blog) or areas of funding they can apply for to support future innovation and growth.
Winner: R&D provider – they can think outside the box by using their expertise.
Support
Like with any service, the level of support available depends on the quality of the provider.
Many software companies state that they have onboarding and ongoing technical support.
R&D specialists will also offer ongoing help when dealing with your client's claims. Any good provider will go the extra step to provide regular updates from the industry by inviting you to webinars or through exclusive guides.
Winner: Both – depending on the quality of the software or provider chosen.
The importance of research
Top R&D Providers and Softwares
I dive into the most popular specialists and softwares in this blog!
Choosing whether to use R&D software or an R&D provider will depend on your firm's individual circumstances, goals and existing experience with the scheme.
However, when it comes to either option, not all the choices available are equal - you will need to do your own research into which is best to suited to your business and clients. To give you a head start on your research, more information on the reputable softwares and providers can be found here.