1. Chartered Tax Adviser status
Is the R&D adviser a suitably qualified tax professional?
Advice or support with making an R&D claim is tax advice. R&D tax relief/credits are schemes delivered via tax legislation, claimed on your company tax return, and managed by HMRC.
The onus is on the taxpayer company to make sure it gets things right, with HMRC checking some of the claims it receives more thoroughly to ensure compliance. Seeking support and advice from a suitably qualified tax professional in relation to this tax relief will help you to get things right.
Is the tax professional a Chartered Tax Adviser?
Chartered Tax Adviser (CTA) status means an individual is a practising member of the Chartered Institute of Taxation (CIOT) – the leading body in the UK for professionals dealing with all aspects of taxation. CTA status is highly regarded in the tax industry for the following reasons:
- Exceptionally high standards required to qualify as a CTA (detailed technical examinations in tax combined with mandatory time-based practical experience in a tax facing role).
- The obligation to keep up to date with tax law relevant to your field(s) of work (CPD), which are spot checked by the CIOT.
- The requirement to hold professional indemnity insurance at prescribed minimum values and scope to protect clients should the need arise.
- The need to follow high expectations around ethics and conduct when practising in taxation – Professional Conduct in Relation to Taxation (PCRT).
- Accountability to the CIOT who deal with complaints and administer disciplinary procedures and fines if a member is found to have not followed required protocols or behaviours.
Working with a CTA gives you assurance that the adviser has the relevant tax credentials and is regulated by a body relevant to tax advice.
2. Experience in R&D tax relief delivered with integrity and consistency
Who to work with comes down to personal choice, ideally made by the people in your business that the R&D adviser will collaborate with.
Specialist R&D tax advice can be obtained from large agencies that process hundreds of claims per month, to standalone tax advisers that might process 30 claims a year.
Whilst larger firms might sensationalise the scale of their operations, dealing with a large number of claims does not necessarily make their staff “better” at supporting your business through the claims process. In the same way that dealing with a large volume of claims does not always expose those working on the claims to all complexities within tax legislation.
I would say a better credential is time-served experience working in this area – exposure to issues, a deep knowledge of tax legislation, crafting of methods to articulate information and approaches to portraying tax positions well in a claim report builds up and cements over the years. Someone with many years of experience in delivering R&D tax advice will be extremely capable in dealing with the nuances of this relief.
Whomever you choose, the main thing is that your R&D adviser is present, diligent and takes the time to truly understand your projects within the context of your business. Because everything about the process and deliverable is extremely important to them too!
This is what drives out comprehensive coverage of qualifying work and qualifying expenditure, which in turn maximises the value delivered by the tax incentive. A transactional exchange of outline bullet points and payroll data with a few hints and tips thrown in for good measure doesn’t really cut it!
3. Taking ownership of the process and content
It is important that HMRC receives good quality information to support your R&D claim.
Knowing where to start and what to pull together can be overwhelming for staff or business owners in claimant companies. Getting the right people to focus on what they need to do is so much easier all round when the R&D adviser is the main point of contact, communicates directly with the various people in your business at the right time and only asks them what is relevant and necessary.
A credible and experienced R&D adviser will have the right knowledge around the intention and purpose of R&D tax legislation, HMRC interpretations of the rule base and familiarity with issues raised by HMRC. Taking ownership of information gathering, analysis and then drafting the content of the report is more efficient and effective if done by the R&D adviser to deal with the aspects that are important.
Whilst it is never possible to guarantee that an enquiry can be avoided, assuring HMRC, demonstrating compliance and dealing with current issues to alleviate concerns helps to reduce the chances of an enquiry. This is where a good adviser will add immense value.
4. A team-oriented personality
Working alongside different staff within your business effectively is a huge part of an R&D advisor's role. To maximise an R&D claim, an R&D adviser should collaborate with the right people in the business, and this is never just one person.
The process must involve your scientific or technical staff working on the development projects, your finance staff and for larger businesses your in-house tax staff, and your commercial staff/legal team.
A good R&D adviser will proactively seek out face to face collaborations and flex their approach to fit around people’s schedules, how well individuals grasp what is being asked of them, what information is available etc.
A good adviser won’t be limited by pressures such as timesheets and profits in the job (recoveries) or lack of time/availability because of a heavy client portfolio. Such limitations hinder thorough exploration of information, evidence or positioning the tax matters well in the claim report.
A good adviser will spend as much time as is necessary to speak with all of the departments to surface the full extent of qualifying work. They will be able to provide a single point of contact with continuity to ensure nothing gets lost in translation, and that relationships within your business and knowledge about your business builds year on year.
This is what creates the right environment to produce the best R&D claims; continuity brings a process that becomes familiar, efficient and enjoyable.
5. Transparent and fair pricing
Pricing does vary considerably these days for R&D tax advice. What’s right for your business will depend on what you need from an R&D adviser. Check very carefully the scope of work and what you will be expected to do – and ultimately, reflect on whether this genuinely represents good value.
Some of the pricing models that on the surface are “cheaper”, are not always transparent when highlighting the value in terms of the true cost and/or the comparative scope of work offered.
Low Fixed Fee Model
Take a model of a low fixed fee, say of £3k per claim – unless you know the value of your claim before you sign up, you cannot know whether this fee is as good as it seems. If the cash/tax benefit you receive is only £5k, then a £3k fee equates to 60% of this, which is unfairly excessive. If you claim annually and know this represents more like 15%-20% then that’s in keeping with the average price for full scope R&D services. If you are considering this option, ask the R&D adviser if they can gauge the potential value of your claim before you sign up.
Low Percentage Fee
Low percentage fees of 5% appear to be exceptionally good value, for what may sound like a full scope service. However, watch for reverse engineering using portals and automated report generation software meaning effectively you are paying for a client DIY with review and guidance service. If that’s all you need then this works, but if you thought you were getting the content writing expertise of a tax professional, this could be disappointing.
I would also say that review based approaches are never as beneficial as a full scope service in the round in terms of error detection, enquiry readiness or maximising the value of a claim.
Incremental Increases in Fees
Also, watch for incremental increases based on the value of your claim that you may not realise will apply until you have signed up and you start to calculate the value of the claim properly. Suddenly, the headline percentage may increase to a level equivalent to a full scope service that you are not receiving.
If you work with a good R&D adviser year on year or have a history of making R&D claims, they will be able to flex their scope and fee if this is appropriate for your circumstances. Assisting a company with an R&D claim is not a one size fits all scoping/pricing model and different clients have different needs.
Personally, I believe a contingent fee basis for an R&D adviser-led full scope (discuss, gather, prepare, defend) is best for most clients for the following reasons:
- The percentage basis is clear – you can see how much of the cash/tax benefit you will be retaining or paying over. I never charge more than 20% because it’s important that your business retains the value.
- The percentage basis means that year on year, whatever the final value of the cash/tax benefit, your business will keep the same percentage value. The adviser fee changes in line with your cash/tax benefit, keeping things fair and transparent.
- It is possible to put a cap on the ultimate value of the fee, which I do on grounds of decency. For example, 20% of the cash/tax value, subject to a cap of £X. This means that once the claim value increases above the set cap, the effective fee percentage falls.
I have seen instances where some advisers seek to charge more as the claim value increases – presumably because higher claim values are more likely to attract the attention of HMRC. By pricing fairly in the first place, I do not need to charge more to cover everything I need to do to help clients compile and document a robust R&D claim.
There are no hidden costs and if there is an HMRC enquiry (something that can never be ruled out) then I will liaise with HMRC to resolve this as part of the scope of work for no additional fees.
From an integrity standpoint, I personally like to know that if there is an inquiry, I will have the opportunity to resolve this for my clients – it’s my work, my business and I care that my clients are fully supported.
The R&D adviser can take ownership of the process and content and is more likely to be able to maximise your claim. When clients prepare, it is harder to spot errors or identify all costs because you are not involved in the information gathering and exploratory phases.
However, if my clients wish to move to a review only approach or need a fixed fee, then I consider this with them armed with the knowledge of the historic claim values and only having explored the current year to estimate the potential value of their claim. This is to ensure that the fixed fee is fair and does not exceed 20% of the cash/tax benefit.
6. Coordinates with your accountant
R&D tax relief is a part of the wider Corporation Tax Return. Compiling an R&D Tax Credits claim can be offered as a standalone specialist service and clients really should be liberated to choose who they work with in this regard.
Most accountants are receptive to specialist R&D advisers - subject to understanding our credibility - and a good adviser will take a joined-up approach to share information and support your accountant with effecting the R&D claim if necessary.
Some R&D advisers do have tax software to submit the R&D claim for you, separate from your accountant. However, having worked in practice in corporate tax compliance, I personally prefer that your main accountant/tax adviser enters the R&D claim figures on their tax software as part of their annual compliance work.
This is because your accountant is responsible for managing and optimising your wider corporation tax affairs and an R&D claim will change the tax profile of your company tax return. Your accountant needs to be aware of this and work with your R&D adviser to ensure the best decisions are being made.
It is important that the accountant maintains full knowledge and control over any changes to your tax affairs. I know it would have been difficult and a shock to keep track of things for a client if I did not know they had made an R&D claim or why/how a repayment of corporation tax had transpired for example.
It is possible for a client to put in a Letter of Authority to HMRC’s specialist R&D team to give your R&D adviser authority to liaise with HMRC just on matters related to the R&D claim. This does not displace your main accountant’s overall authority across all corporation tax matters.
When the R&D report is prepared, it is saved as a PDF document. This is provided to you and your accountant. Your accountant can see the figures that need to go in the Corporation Tax Return, and a good R&D adviser will double check these are as expected – working with your accountant.
The PDF report is then attached to the electronic filing bundle with the company computation, Corporation Tax Return and Statutory Accounts by your accountant to submit to HMRC. From 1 April 2023, everything will need to be submitted digitally in this way, unless an exemption applies.
Why would you choose to work with me?
Prior to year 1 – Having spoken with me, your intuition tells you I’m the kind of person you want to work with as an extended part of your team.
Year 2 onwards – I was everything you hoped I would be and the benefits of building on our working relationship include enjoying the collaborative experience.
How can you be sure working with me will be a good thing?
Brilliant question! The answer, you can’t - I could put some words down here, but words are just words. Whether or not I deliver value can only be known if we work together.
How a business describes what it is like to work with, and the reality of this, are always different. Beware of narratives sensationalising processes and credentials.
Uncomfortably often, many of the benefits and credentials I see outlined to give assurances in the world of R&D tax claims are completely unfounded.