Submitting R&D claims for clients: what accountants should be wary of

R

esearch and development tax relief often goes under the radar when it comes to advising clients on their tax affairs. Many businesses may not be maximising their R&D tax credit claims, so they could be missing out on invaluable corporation tax deductions or cash refunds from HMRC.

Far from being limited to inventors and cutting-edge tech companies, R&D often takes place when a project seeks to gain an advantage in overall knowledge within its field, whatever the sector, whether that’s technology, science, construction or agriculture.

As we all know, clients everywhere greatly appreciate accountants being able to improve their bottom line. R&D tax credit claims are just another way to do this.

However, in a landscape where HMRC is scrutinising claims more than ever to prevent fraud, there are some key considerations when submitting claims for your clients.

There is no legal requirement for technical evidence to be submitted with an R&D claim, but it is expected.

Your justification should include an overview of the project and explanations of associated costs. This is where you should detail your client’s work and why you believe it should be eligible for tax credits.

Very rarely does an R&D enquiry start by examining the numbers. Technical criteria are the starting point. The prime consideration of HMRC is this: does that technical justification warrant the value that’s being claimed?

A company has a duty to retain relevant records that can support claims – and to make those records available when required to do so.

This can include everything from contracts and invoices to emails and details of third-party costs, so it pays to be thorough in record-keeping. It is all about being able to provide evidence to back up the claim.

If there is not already one in place, make sure to implement a logical documentation process for your client. Then they can be proactive, rather than simply reacting to HMRC requests for further information.

Proper storage of documentation will ensure your client can obtain maximum value from their claim.

It is important to communicate an absolute start and end date for your R&D claim, excluding any costs incurred before the start date. The end date should come when the project has moved from R&D into a production phase.

When stating these dates, and anything else at all in the claim for that matter, you need to be consistent with the details. HMRC will count any inconsistencies against the claim.

Submitting a claim which complies with the legislation, is robust, and contains clear evidence gives it the best chance of being approved, so it is worth taking time to ensure everything adds up.

A ‘competent professional’ is someone employed by a client who has a successful history, significant experience, and skills or qualifications in the area where R&D was undertaken. For example, if it is a software innovation, this individual might be a software developer.

They should be able to assess which activities qualify as R&D, drawing tight boundaries between relevant activities and routine work which does not qualify, and attaching expenditure to the relevant activities.

The individual’s professional biography should be included in the claim, and you should ensure that your client can quickly identify competent professionals to HMRC, in case they need any clarifications.

As you have probably noticed, there are some advisors out there promising to get R&D tax credit claims done in ultra-quick time, sometimes as little as 15 minutes. This is simply too good to be true.

The advisors making these promises are far from being experts and could harm your relationships with clients if you use them. More than that, they undermine the whole concept of R&D tax credits.

It takes much longer to submit proper claims than these rogue advisors suggest. To speed up the process without making compromises though, you can use specialised R&D tax credit software to both put claims together and establish whether they are viable in the first place.

While there may be numerous considerations and potential pitfalls when submitting R&D tax credit claims, the opportunities are great.

If you take the time to put a claim together carefully, the benefits to your client can be substantial. A successful claim will also, of course, go a long way to cementing a positive relationship with a client.