2020 has marked the 20th anniversary of the introduction of the R&D tax relief regime in the UK. As my previous article said, we’ve seen many changes over the years, but nothing like the current circumstances!
And yet, in the time when companies need cash the most, they’re not realising the extent to which what they do qualifies (or sometimes, though less often, that they even qualify at all). Why is this still the case, after all this time?!
The answer, for me, continues to lie in the name. “Research & Development” for this purpose is such a red herring. The name continues to conjure up images of rocket science and pharmaceuticals. Yes, of course companies in these sectors are likely to be performing qualifying activities (lots of it!) but so can so many others, in a multitude of sectors.
The Cooper Parry R&D team speak to so many businesses that believe they don’t qualify for relief as they feel they are simply “doing their day job”. I think minds would be far more open with:
- Product change relief (both new and existing);
- Manufacturing process/efficiency improvement relief;
- Speed/functionality/new material/lightweighting/space constraint/value engineering relief; or
- Getting-that-idea-to-actually-work-in-practice relief!
I jest (half) of course but whilst these names roll far less well off the tongue, they give far more of a practical idea of what sorts of things companies can actually make claims for.
So, in very straightforward terms, if:
- You’ve CHANGED something (anything) in terms of what you make, how you make it, or you’ve added to your technical knowledge pool; AND
- There have been CHALLENGES in order to make those changes work, i.e. it’s taken some thought, some time and some testing….
….then you should be looking at this very closely indeed and having it done properly by someone who is properly qualified to do so.
Choosing the right specialist to help you
One of the lines we frequently hear is: “We’ve had six people come and talk to us about R&D, claiming to be ‘experts’ but this is the first time we’ve ‘got it’ and can see why we might have something to claim.” This is obviously a huge shame for the many businesses that are missing out.
So, how can you protect yourself from the “quick buck” merchants that have flooded onto the market in recent years? Thankfully, the Chartered Institute of Taxation (CIOT) recently issued their guidance on exactly this; the culmination of the work done by the Working Practices Group (WPG) set up to look at raising standards in the R&D industry (of which I was very proud and pleased to be 1 of only 5 advisors nationally to be invited and involved). You can read it here.
Some of the things they highlight and suggest looking out for are the same things (not surprisingly, having been involved) that we have advised companies to be wary of for years. Look out for some of these red flags:
- Meaningless claims like “100% success rate” or “HMRC approved methodology”
ALL R&D advisors could claim that 100% of their claims had been agreed. What the ones running this line fail to mention is how much has been knocked off by HMRC in order to push them through. NOBODY has their methodology approved by HMRC directly.
I’ve been an R&D advisor for 20 years and so yes, I’d like to think by sheer volume of claims agreed, and how little enquiry we have into our claims, that they can’t think we’re going too far wrong. But that’s still not approval. We even recently saw a statement by someone that they had dealt with the most R&D claims in the UK! (Not only grossly arrogant but laughable when they’d advised on R&D directly for less than half of the 20 years the regime has been in place).
- Not qualified to advise
CIOT are concerned about R&D advisors not having the professional knowledge and skill required to advise on this complex area of tax, and those who don’t keep up with the expected CPD levels. Often, claims are being done by advisors with little or no tax experience, and so they actually don’t/can’t advise (or worse don’t care) about the tax effect of the claims, both in the current and future years – meaning that promised headline benefit might not be achievable.
- Poor practice
There are many examples here of things to ask about and red flag if they happen, like: advisors not speaking to the technical staff at the company (yet somehow managing to decide what projects do/don’t qualify!), and companies not signing off on their own R&D claim report (sometimes not even being allowed to see it, justified by it being the advisor’s own IP – which is absolute nonsense and ludicrous!).
There are 4 things I always say to companies who are thinking of choosing an R&D advisor:
1) Professional – Is the advisor a member of a professional body (e.g. CIOT) whose rules and ethical standards they will be held to account by? Are they signed up to Money Laundering Regulations etc?
2) Dual Qualified – Do they have a good mix of technical backgrounds, allowing them to advise across a multitude of sectors and also tax knowledge, ensuring the effects of claims on the wider tax computations and returns are dealt with in the right way?
3) Experience – How long have they been advising on R&D claims for? So many of the “PPI salesman” types have flooded the market in the last 2-3 years especially. Our senior team has 12 years’ R&D advisory experience on average (for instance).
4) Reputation – What are their links with HMRC? Do they attend the Research & Development Consultative Committee (RDCC) meetings, at which policy updates and the latest HMRC thinking are discussed? (60 advisors do, but it narrows the field). Do they have any CIOT links (like our WPG one)? How long have they known some of the specialist HMRC R&D inspectors to have built up a reputation for good practice and fair claims?
So, where does this leave us?
The R&D tax relief regimes are very dear to my heart, having done this for so long now. Done properly, it remains the most amazing part of the tax legislation and I love seeing the real upside/effect it has on businesses: new premises, machinery, staff, or even just keeping the lights on at the moment!
There are other brilliant R&D advisors around the country whom I wouldn’t hesitate to recommend in an instant. So, if you have one of those, who ticks the above boxes (the good bits, not the flags!), then I’m genuinely happy for you. The regime is, and has always been, intended to be a massive force for good.
If, however, any of the flags ring a bell, or you’ve still not quite got it, compared to the “alternative relief names” and think there might be something more there for you, please just give me a shout at firstname.lastname@example.org