The Good – The research and development (R&D) regime offers fantastic tax benefits to companies who can claim relief and carry out qualifying R&D activities. An SME company that incurs qualifying R&D expenditure can claim a deduction equal to 230% of these costs when calculated its taxable profits! The government want qualifying companies to claim R&D relief and incentivise innovation and advancements in technology and science and they have produced a guide for SMEs which can be found by clicking here (http://www.hmrc.gov.uk/gds/cird/attachments/rdsimpleguide.pdf).
The Bad – There is a huge industry of ‘specialist and boutique’ firms who offer R&D services and help companies to make claims. The problem is that this industry is only partially regulated and there are various ‘experts’ out there whose practices are dubious at best! Most specialist firms offer their services for a cut of the R&D claim which is not in itself unusual, but recent concerns have been raised about inflated and incorrect claims for costs. Cases are now also coming to light of spurious and indeed in extreme cases just blatant incorrect claims. As a result of this HMRC have increased their resourcing within their R&D team to focus on compliance.
The Ugly – One such example recently came to light in the first tier tax tribunal case of AHK Recruitment Limited. It is entirely possible that the company was due relief however, the R&D claim was unsuccessful due to a complete lack of evidence. The R&D specialists in this case were found to have failed to identify or substantiate the advances being sought and the uncertainties that these were said to overcome. To make matters worse there was no analysis of costs within the claim and no ‘competent professional’ from the claimant company itself gave any evidence to support the claim.
Happily ever after – There are many specialist R&D firms whose actions are in line with the professional standards we should all expect and in most cases it is just a case of ‘doing your homework’. If you are approached by a ‘specialist’ then some of the things you should consider may include:
- Whether they have any professional qualifications or are regulated by a professional body?
- Do they have previous clients who can provide positive reviews of their services?
- Do they really understand your activities and speak to your key team members to ascertain all the relevant facts?
- Are they happy to provide their final reports with you and your accountant?
- How do they support you if there is an HMRC enquiry?
At Wells we work alongside various specialists who can help to identify and quantify where R&D claims may be made. If you’re interested in learning more about R&D relief and if this is applicable to your business contact the team at Wells Associates.