A comparison review: What’s the best way to make an R&D claim? (blog)
Working in the Research & Development (R&D) tax space, I get asked all the time about the different ways to claim:
- “Can I do the claim myself?”
- “Shouldn’t my accountant just do this for me”
- “Should I use a specialist?”
And the answer, believe it or not, is yes, to all three!
However, claiming for R&D tax relief can be confusing. To make a successful claim, it takes a thorough understanding of not only your industry but also in-depth financial and legislative knowledge.
To make matters more complex, HMRC has recently started to increase its investigations as it aims to crack down on fraudulent claims. For most businesses, it’s nothing to worry about, but it further highlights the need for all the correct information to be included in your application.
So, what you should be asking is, ‘which way is better for me?
To ensure you choose the right option, let’s discuss the pros and cons of each option below.
1) Can I do the claim myself?
Much like many other business activities, such as payroll, accounting, or marketing, you could make an R&D claim yourself. However, are you prepared to take the risk?
By taking on the claimed responsibility, you need to be sure that all the correct information is included so that you get all the money you are owed and avoid any risk of errors in the case of an HMRC enquiry.
In addition, could your time be better spent elsewhere? After all, your time is money!
I recently experienced something similar when I tried to create a website through a free DIY site. I have no experience in the website design space but was spending time looking at the different font options, page design layout and all the avenues I could go down.
Don’t get me wrong- there were 101 video tutorials I could watch; however, in the end, I decided to reach out to a web design client for some help. And guess what? A price was agreed upon, and a website is now being built by a trusted contact. The moral of the story – I personally prefer to stick to my strengths.
You, on the other hand, may feel completely comfortable taking matters into your own hands. If you do decide to go down this route, there are numerous websites out there that help guide you on the report questions/structure/guidance for you to successfully submit your claim.
Here are some key DIY disclaimers:
- I understand 100% what ‘technological uncertainty’ is in my space
- I understand 100% the ‘advance’ I have created in my industry from a scientific or technological perspective
- I understand 100% who my competent professional(s) is and why they are suited to this claim
- I understand how to write an R&D report in the way HMRC would like to receive it
- Should my claim come under investigation, I am happy to stand with it and challenge HMRC’s findings
- if my claim is rejected, I’m comfortable with the penalty process (sometimes the entire amount you are claiming for)
Cost: Just the postage stamp to send the application to HMRC and your time. Or the fee your accountant will charge to submit it on your behalf (this may already be included in your annual fee).
Pro: It’s the cheapest way to do things and you’re in control of what you submit
Con: You are going up against the tax man entirely on your own - the risk of investigation is much higher
2) Shouldn’t my accountant just do this for me?
If I had a pound for every time, I was asked this question, I’d (almost!) be a millionaire.
Again- the answer is yes. But how well the claim is done all depends on the accountant and their areas of expertise.
When I first started working with accountants, I quickly began likening them to doctors -intelligent, well-educated, ethical, and honest people. What I also realised is that your local GP can be called a “doctor” and a heart surgeon can also be called a “doctor”. But I know who I’m going to for a headache and who for a transplant.
This may be a bit farfetched, but finance, in this instance, can be compared to medicine. Your accountant may be proficient across every avenue of finance - they may know everything they need to know about tax, legislation, HMRC guidelines etc, or they may not be and only be specialised in a specific field.
If your accountant is doing your R&D claim, they should have the same level of confidence as the DIY statements above.
Here are some key ways to tell if your accountant is proficient in R&D tax claims
- They will be proactive in bringing the topic to you each year (you shouldn’t have to mention it at all)
- They will sit with you once a year and discuss your projects together to get a better understanding of your advance and uncertainties.
- They will invite you to be part of CPD sessions and webinars where they educate and help other companies understand the R&D journey
- They will educate you each year of legislative changes and how these changes will impact your claims moving forward
- They will highlight partner opportunities which may enhance your claim. I.e., funding/ NPD partners/additional financial incentives etc
You may find that if your accountant doesn’t handle R&D claims internally, they will have a preferred partner in place, so just ask them.
Cost: There are three ways an accountant will charge for this work: Typically, it will be a pay per hour (a claim, depending on how big the company is, can take anywhere between 6 hours to 60+). The second option is they charge you a set fee – this could range anywhere between £100- £10,000+. The third way is to charge based on a success basis and they could keep a percentage of the fee (i.e., 20%).
Pro: You are going through your accountant who you already know and (I imagine) trust
Con: What if your accountant is the GP and you could have maximised the claim better via the specialist?
3) Do I need to use an R&D specialist?
5 Things My R&D Provider Should Be Doing
Discover what separates an average R&D provider from a great one with this article!
You can defend yourself in court. You can dye your own hair. You can build your own house. But, again the question comes back to this: do you want to?
By using a specialist, you are putting your trust in a company that knows the R&D claim process inside out. These companies should carry out this work every day and thrive on high success and low investigation rates.
However, it is essential that you trust your R&D provider. Make sure you do your research – get a feel for the content they put out there, watch their client testimonials, and speak to a company that has used them to get an idea of their journey. If you’re struggling to find the right one, check out my full blog on “5 Things my R&D Provider Should be Doing” here but in the meantime;
Here are some key things an R&D specialist should be doing
- A specialist has 1 job: to maximise your claim journey
- That includes educating you on what the legislation means and its implications
- Help you understand which projects count and which ones don’t
- They should be doing a deep dive into the world of innovation within your business to see if they can assist you to receive money back in other ways, such as incentives for funding, through your commercial property or through your patents etc.
- They should be actively engaged with you throughout their R&D engagement activities. I.e., Inviting you to webinars, seminars, CPD sessions etc.
- They should be seen as thought leaders, engaging themselves in groups and organisations where R&D talks are seen as value-adds
Cost: By using a specialist, you are more likely to pay up to 30% of the fee, leaving you with around 70% of the benefit identified.
Pro: You are in the safe hands of an expert who sits at the table with the tax man on a daily basis
Con: It can seem expensive, and everybody calls themselves a specialist these days. So, you need to do your homework.
Need to talk to an expert?
Get in touch today and I’ll help you get your R&D innovation on the right track!
Choosing the right option
The options outlined should give you a good understanding of which route should be best for you. No two R&D tax claims are the same, and what option is best is all dependent on your specific situation, risk tolerance and personal knowledge of tax law.
If you have any questions on anything mentioned in this blog, reach out via the contact me form or via karen@innovationinsights.uk and I’d be more than happy to help.