Research and development tax credits

Alfresco_Ovens

Hi,

A few months ago I was at a trade show and came across a so-called government initiative, R&D Tax Credits. The whole thing appeared to be just too good to be true.

I Googled 'R and D Tax Credits' and sure enough it’s all backed up by the Government but they don't help with the claim.

There are lots of R and D Specialist on the internet who all say they are the best and will maximise the claim with their superior knowledge!

I’ve done some of the qualification checks and I think we qualify as we have spent a lot of money designing and developing a new multipurpose outdoor oven. Lots of trialling and testing with materials etc and we still haven’t finished.

I’m struggling to decide on what to do as my accountant said get a few quotes which I have done. Problem is that they all have a different fee ranging from 12.5% - 35% and all say they can maximise that claim!!! Do I just go with the 12.5% fee? Will that be as good as the 35% fee company? How can there be such a big difference?

Also with some of the quotes I will be signing up to a 3 – 5 year contract!

I want to make sure we claim for absolutely everything but at the same time don’t want to over pay on fees if it’s not necessary.

Any advice would be very helpful.

Thanks
Gino

chrismac1

The most important thing short term is the time limit. So for example if your company year-end is 31 October, then you have until 31 October 2017 to make a claim for any R&D spends in the year ending 31 October 2015.

15% to 20% is about right, only payable on submission of a successful claim to HMRC. If you've already paid some corporation tax this will mean a refund within 4 weeks of re-submitting the corporation tax return. If you've not paid any corporation tax you'll get a tax credit payment, these can take a bit longer as they probably get a few extra checks.

In terms of assessing the quality of the submitters, it is important in my view for potentially large claims - say over £10k - that the person comes out to see you and runs through exactly how your business works, what the processes are and what technical and scientific uncertainties you have been addressing in your programme.

Although most of the submission is number-crunching, the most important page is the technical justification. To do that right you must understand the business and its processes, on larger claims the HMRC R&D unit can call upon people in the industry to read the technical stuff and assess whether it is all porkies.

One easy question to ask is whether your advisor has had any claims knocked back by HMRC and, if so, why.

Barrie_Dowsett

I can understand your predicament regarding the difference in R&D tax consultancy fees. The industry rate for a new claimant from a reputable consultant is a 20% win fee. You should not sign up for more than 3 years (back 2 years and the current year) and be careful about consultants that want to tie you into long-term contract and have early termination penalty clauses. If the R&D tax consultant is confident on their abilities to deliver, they should agree to a rolling 12 month arrangement.

The most important thing to consider is that your project from the start needs to seek an advancement in technology in the eyes of a competent professional. Therefore the R&D specialists needs
to have experienced technical professionals that have worked in your industry sector. The costing and tax aspects of R&D tax claims are reasonably straight forward, it is the justification of an 'advancement within your industry sector that HMRC usually challenge. Interestingly you are eligible if your project is an 'appreciable improvement' or is something similar already exists in the market and you are unable to access the know how on the public domain.

Also find out if they will defend your claim with HMRC on your behalf if an enquiry is made and that they will not charge an additional fee for this.

gingercordial

It is absolutely a legitimate scheme and well worth claiming. However I agree there are lots of people out there who claim to be specialists and it is hard to choose especially for your first time.

Something in the middle of that range would seem appropriate to me, but to echo what others have said you should ask them:

- What experience they have with making claims within your particular industry - if they have only ever done (say) pharma then your kind of innovation in manufacturing an oven will be very different and they may not understand it.
- What experience they have with making claims with clients of your size (there are different rules for large and small companies, and they need to recognise in a small company you may be very busy doing everything yourself and need more support).
- What are their qualifications - some consultants employ scientists/engineers so they can better understand the client's innovations and (in theory) put together a more convincing submission.
- What percentage of their submitted claims do they actually get back from HMRC (both in terms of number of claims and value, so they might say that 100% of their claims go through but if you ask further they might mean for each claim they're only getting their client back 50% of the amount they've initially put in for).
- How do they intend to do the work and will they be interviewing you/your staff to make sure they fully understand it and have found everything.
- What will they give you at the end ie a nice report, spreadsheet etc.
- Whether their fee includes all the follow-on conversations and arguments with HMRC if it is challenged.
- When do you pay - it should only be when you have the money back in hand from HMRC.

Don't agree to be locked in especially with your first claim as you do not want to be tied to them if they turn out to be useless. After the first one you'll have more of an idea of what to look for next time.