How to deal with R&D tax credit claims

How to deal with R&D tax credit claims

R&D grant and tax credit specialists MSC R&D’s Iain Gray explains why two heads are often better than one when it comes to claiming R&D tax credits

When it comes to claiming R&D tax credits, many business managers assume that their accountant is best-placed to handle the claim while they provide the technical input.

Furthermore, there’s often an automatic assumption by many accountants that if they have the correct technical information, a claim is fairly straightforward.

Admittedly, the fact that any limited company developing new products, technology or processes may be eligible and can claim for up to two accounting years retrospectively, sounds straightforward enough.

But, even when a company “owner” or director feels he or she can identify R&D projects better than anyone else, scoping them in the context of the R&D tax criteria is not that simple. It requires technical understanding combined with an in-depth knowledge – without which the numbers might not add up.

Therefore, the reality is that presumptions can fall way short of the need for an in-depth understanding of what potential R&D activity may or may not fit within the context of the current legislation.

Take the meaning of R&D in the context of R&D tax relief – an issue that isn’t simple to handle. R&D in this case is not limited to the R&D department, as HMRC defines it as work that achieves a scientific or technological advance when scientific or technological uncertainty exists.

This can include achieving an increase in overall scientific or technological knowledge or capability; significantly improving products, processes, materials or services through scientific or technological development; or using science or technology to duplicate the effect of an existing product or process in a new or appreciably improved way.

For instance, a whole project might not qualify but the element addressing the “technological uncertainty” does. That can include planning and managerial activities in some instances.

To be sure a claim is justifiable and as beneficial as it can be, an accountant must fully understand the detail of the HMRC guidelines. That’s a 15-part manual and, once you’ve read through it all, you’ll need the technical expertise to define, quantify and support a claim.

This is where a specialist partner that lives and breathes R&D and has extensive experience in supporting companies in funding, resourcing and exploiting R&D would make the process more efficient and more profitable for all parties.

With MSC R&D, clients often find that the objective, expert evaluation and broader experience in supporting technology companies can fundamentally change the way they look at and approach their R&D strategy going forwards.

Let’s consider an actual claim. A healthcare software company had previously submitted R&D tax credit claims via its accountants but was concerned that, due to the complexity of the legislation, it might not be fully compliant.

MSC R&D ran a review and its specialist was able to identify a significant value of under claims and some over claims resulting from errors. Two experts (technical and financial) then spent a day with the client identifying eligible projects with the technical team and accessing relevant financial data, following which a detailed report was subsequently prepared to submit to the HMRC as supporting documentation for a revised claim.

As a result, the client received an additional £75,000 tax offset and was fully compliant in the event of an HMRC audit, with robust supporting documentation.

The same result could have been achieved from working with the accountant from day one.

MSC R&D operates on a “paid-on-results basis” so it’s a risk free collaboration that brings benefits and financial rewards all round. Find out more about MSC R&D’s services and its Partnership Proposition, and explore how you can effectively deal with R&D tax credit claims.

Find out more here. 

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