Beware of Misleading Statements from R&D Advisers

Learn to spot unauthentic advisers with a lack of integrity – marketing myths to watch out for!

Type “R&D tax relief” or “R&D tax credits” into a Google search and you’re instantly greeted with lots of paid advertising from R&D “specialists” - here to make the process of saving money or getting cash back from HMRC fast, easy and risk free…

But it’s not that simple.

The concerns and solutions

The worries and concerns of potential claimants are real: 

• Acceptance - Will HMRC accept my claim without question?
• Enquiries – What if HMRC ask questions about my claim? This could be stressful.
• Ease – How long will it take? I/my team is busy with business as usual. I’m not sure it’s worth spending time on.
• Financial value versus risk – I don’t have the budget for this service, what if the claim doesn’t go through?

Yet the marketing statements to address and alleviate these concerns and objections do not correctly portray the situation. 

I’m digging into the 4 main marketing messages and what they suggest:

• We have 100% success rate – aka HMRC accepts all our claims
• We have HMRC approved methodologies – aka HMRC will not question our claims
• Fast tracking or low time commitment – aka a quick and outsourced process
• No win, no fee – aka no risks involved either financially or with respect to the tax authorities around “having a go”.

Whilst such assertions appear to be meeting the needs of a claimant company, they overplay the certainty of the outcome and downplay the requirements and potential risks.

You will never find a reputable, qualified tax professional speaking this way in relation to tax matters or HMRC. And here’s why…

“100% success rate”

Many C-suite executives and Director teams are apprehensive about whether work carried out by the company they own or work within meets eligibility criteria. This concern is admirable; it’s driven by the integrity of the individuals representing the company to be sure that the company does not wrongfully claim a tax relief.

A headline such as 100% success rate suggests to individuals in the early stage of exploring R&D eligibility that the service provider must know exactly what they are doing as they are telling businesses that all the claims they prepare are “accepted” by HMRC.

The problem with this statement is that HMRC does not routinely or formally approve or accept claims – that’s not how the Corporation Tax Self-Assessment system works. 

You cannot even be sure that HMRC has looked at your claim unless they decide to open an enquiry into your company tax return to delve into the details of your R&D claim. There is no acknowledgement of acceptance of the claim since HMRC does not have the resources to look over every single R&D claim that is submitted. They focus their efforts based on risk (industry sector, size of claim etc.) and sometimes trigger an enquiry at random – this is a compliance check.

The only way to know, for sure, if a claim has been accepted, is if HMRC has opened an enquiry into your claim and subsequently closed this without adjustment (or let’s even say minimal adjustment – accepted without being completely thrown out).

R&D tax relief is a tax item. It is part of your company’s Self-Assessment Tax Return (CT600) and is subject to the corporation tax regime enquiry windows. HMRC has one year from the filing deadline of the company tax return (CT600) to raise an enquiry into any number forming part of that return – including R&D tax relief. This time frame is longer than the filing deadline if an amended return is submitted with an adjustment to that return, such as including an R&D claim; and is longer still if HMRC suspects wrongdoing. 

Therefore, a corporation tax refund or payable credit is not in any way to be taken as HMRC "approving" your claim. Many corporation tax repayments are automatically generated by computer systems and can later be reclaimed following an enquiry, leaving unsuspecting business owners at a loss if they no longer have that refunded cash to hand - if HMRC’s system has issued a repayment of corporation tax that is later found to be unjustified, your company will need to pay that back, plus interest, and possibly penalties too.

In summary, it is impossible for an R&D adviser to claim 100% success, because HMRC does not approve claims, and I doubt very much that HMRC has opened an enquiry and ‘approved’ every single claim submission made by the R&D adviser claiming 100% success!

“HMRC approved methodologies”

The top priority for my clients is to produce a claim report that stands up to HMRC scrutiny; no-one wants to have to deal with an HMRC enquiry. 

An R&D adviser suggesting that they have an “HMRC approved methodology” or “proven process”, invokes a false sense of security that there would not be an enquiry. 

It’s important to understand, however, that HMRC does not have nor publish “approved” methodologies. And as a tax professional with 20+ years working in corporation tax, a “proven process” is something I am yet to come across. 

There are narratives within HMRC manuals that refer to high level methodologies in examples, but these are intended to be examples only for the circumstances outlined in that case study – not intended to be a one size fits all clarification

Each case needs to be considered on its own merits to determine what is “just and reasonable” based on the information available. It is up to your company to explain, demonstrate and provide comfort to HMRC that the methodologies you have ascertained are just and reasonable. This is a very important aspect of your claim as linking underlying expenditure to your qualifying R&D activities is the foundation for calculating the amount of tax relief you’re eligible for. Note: download my checklist to a robust R&D claim.

“Fast tracking or low time commitment”

You and your staff are already fully utilised, you are busy. 

There are not enough hours in the day to get everything done you want to do, and that’s before adding an R&D tax claim to your “to do” list!

Quite rightfully, an R&D adviser assuring you of huge financial benefits requiring only a short investment of your time – many advertisements suggesting “only 2 hours” - is very appealing, right?

So how does this work? I mean, how do you cram everything you need to do into 2 hours spent with an R&D adviser? In these 2 hours:

• How will the adviser surface all the technical details of your work to position within the framework of eligibility? 
• How do they talk to all the relevant people in your business? 
• How will they educate your team to impart an understanding of eligibility to ensure you have the right basis to self-assess? 
• How will they formulate appropriate and robust methodologies to link all the qualifying expenditure to your qualifying activities involved? 
• How can a thorough and comprehensive review be undertaken for a larger multi-divisional corporation with complexities inherent within its structure or organisation of R&D resources? 
• How will “everything” be fully considered, properly explained and purposefully documented in a meaningful and compliant report? 

Spending long enough to help you as the expert in your field/R&D endeavours and without any prior experience of how to think about your work for the purposes of this tax relief. All without being able to run ledger and accounts reports because only your finance staff or accountants are permitted to do this? And all in just 2 hours of your time … wow, that would be impressive. 

The only “short” discussions I have are with companies whose work does not qualify for this relief or where the financial outlays are not there. For example, samples are gifted to you, a partner enterprise does the work but does not charge you for this, only a small development team is involved for a small amount of time, you pay key development staff a low salary as they are otherwise remunerated via dividends.

To produce a robust R&D Tax Credits Claim report, the process must be one of collaboration between technical professionals, finance staff and R&D adviser, meaning investing as much time as is required to get the claim right.

This tax relief is extremely valuable, and it is always worth the investment of time to get things done comprehensively and correctly to ensure your claim is valid and well documented to make it easier for HMRC to understand should they choose to review it.

“No win no fee”

The portrayal of a pricing model as no win no fee is perhaps what changes the mindset of claimant companies. For me, this is not dissimilar to the PPI mentality, and with no financial outlay associated with making an R&D claim, there is, psychologically, much less risk associated with the claim than paying a large professional fee upfront. 

I am not certain why a charging basis for what should be a professional service would be positioned in this way. What exactly are we looking to “win” at? It’s not about winning anything at all. It’s about checking if there is a genuine basis or entitlement to claim and describing all aspects of a client’s work and costs to evidence this.

Preparing an R&D claim involves knowing the boundaries, understanding the tax technical position and working things out accordingly. It’s interpreting fact patterns and documentary evidence to establish a tax filing position. A good, specialist adviser will support you in doing just this.

I also feel this ‘no win no fee’ causes a huge misunderstanding of the risk involved.It suggests less attention is paid to whether a company is making a valid claim or not, you can submit anything and if it’s thrown out, it’s thrown out, nothing lost.

However, there is much more risk involved. As mentioned above, most claims get paid automatically, but any company can be selected for an enquiry, and if asked to repay a mispaid reward, things can turn sour.

There is a financial cost of getting things wrong in the world of corporate tax – repayment of corporate tax refunded or cash credits received, plus interest, plus penalties, is not desirable by any company, yet it is the harsh reality for many of those who fall for the “no win no fee” marketing spiel. 

Look past the marketing 

Rather than being enticed by the flashing headlines, here’s a better vetting list when choosing an R&D adviser:

• Work with an adviser who is regulated by a tax or accountancy body such as the Chartered Institute of Taxation for example.
• Work with a tax professional that has a strong working knowledge of tax legislation and the R&D guidelines.
• Look for an adviser that is not time constrained due to client recoveries or is overwhelmed with a heavy client portfolio – this way you’ll find someone that is able to take the time to truly understand your business.
• Find an adviser that can stand in the shoes of an HMRC Inspector as you discuss your technical work to ask the questions a lay person would, in order to find out how to link your work to the BEIS guidelines for R&D.
• View the tax professional as an extended part of your team and consider meeting with them regularly “in-year” to discuss R&D work and costs as it progresses.
• Choose a professional that helps you to find workable processes to capture information key to supporting your R&D claim throughout the year. 
• Make the right people in your business accessible to the tax professional for a highly collaborative relationship. This way understandings deepen and so too will the robustness of your claims.

Find the right person to deliver all of the above and you will address your concerns around HMRC acceptance and scrutiny over your claims. There are no guarantees, this is tax, but you will have done everything you can to get things right and reduce the risks in these areas.

Time commitment requirements vary from company to company and year on year within the same company. It depends on your work, your available information, complexities, changes in tax rules and so on. But bringing in an adviser with experience to guide you and write the findings into a report will streamline this process and save you time. The financial benefits of this tax relief are significant and nothing worth having comes without some degree of time commitment. 

In terms of financial value, this will depend on who you find and the respective value they bring to your business and how they meet your needs. Collaborations must be enjoyable. Be wary of low fixed fees, a one price fits all could result in a transactional process where the adviser is not that present, supportive or focused. 

Whilst a no win, no fee mentality are not all they present to be, contingent fees are commonplace in the tax profession whereby a percentage basis is applied to calculate the fee. 

Contingent fees are a good means of aligning costs to your claim to make sure your business always retains the same proportionate value as R&D claim values will fluctuate year on year for a company.

Working with a specialist R&D tax adviser

I’m a qualified chartered tax adviser and a member of the CIOT, with 20+ years’ experience working in tax – predominantly corporate tax.

I began my career in tax in 2001, just a year after the first scheme of relief for Small and Medium Enterprises (“SMEs”) was introduced for R&D Tax Credits. Having trained within the tax practice of a Big 4 accountancy firm, I continued to work in practice for that same employer for a further 11 years. I spent 6 of these years working in corporation tax compliance, before specialising in R&D tax relief within the same Big 4 accountancy firms’ national R&D team. 

In 2012, I left my employment and set up Copper to solely focus on supporting UK businesses with the process of compiling R&D tax credit claims with 100% compliance. 

“Copper” became Copper Tax Limited in 2019, however, Copper Tax Limited is Claire - you get me, everytime.