Research and Development (R&D) tax credits have been a tremendous boost to many innovative businesses in recent years.
They’ve helped by reducing corporation tax due or by generating cash repayments that can help give business performance a much-needed boost.
Now though, more than ever, it’s time to get it right. As the scheme slowly but surely gets more publicised, as more players come into the market and as the cost to the Treasury increases, HMRC have every right to spend more resources scrutinising claims and questioning some of the background behind them.
So we thought we’d take a look at R&D tax credit fees and outline what you can expect.
Is R&D the next PPI? Some commentators believe so!
The rules can be complex, for example the interrelationship between R&D and state aid can seriously affect your wealth and it’s easy to accidentally trip up. So, whilst it’s tempting to go for a supplier that promises the highest possible return, it’s better to ensure you get it right and don’t overclaim.
We see prices ranging from 33% of the tax saved down to next to nothing. From a survey we completed in 2020 the average fee, based on advertised costs from around 30 providers, was 16%. In a cash refund situation, it’s also usual for the service provider to be paid from the refund itself to aid cashflow.
But as with all things tax (in fact with all things), you’re not necessarily comparing apples with apples here. So, lets break down what you can expect from each fee.
At the higher end you should expect:
- An up-front visit and discussion to set your time and cost recording processes in place.
- In-year help for any questions around whether a project, activity, person or cost qualifies, then after year end a further visit to consolidate that information to ensure there’s a proper understanding of the projects and it’s phases.
- The relevant documentation of the projects and the technological or scientific uncertainties you were looking to overcome.
- Submission of the claim to HMRC and management of any questions raised by HMRC over the claim.
The mid-range service is the one we see most often, you should expect:
- The work to potentially be proactive.
- To provide the script (although anyone wanting to provide any kind of service will challenge, review and steer) detailing the uncertainties addressed.
- Your year-end to occur on-site or via a series of video or phone meetings. Where the claim is for a service or software based business with no need to review equipment, operational processes etc, that may be all you need!
- The claim to be submitted and managed on your behalf.
At the lower end, which seems to be bottoming out at 5% fee wise, you can expect:
- A much more automated, self-serve product.
- The service to work on numbers, albeit comparing the costs you identify as being appropriate to the relevant statutory accounts.
- There may or may not be any requirement to submit project definitions (which may be fine, that’s not a legal obligation, it just helps HMRC better understand what you are doing and helps avoid delay and questions).
- You’ll probably need to submit the claim to HMRC yourself.
Please note if you choose to self-serve in this manner, your accountant may look to raise a fee as any (successful claim) will of course cause extra work on the Corporation Tax Return and the relevant year end accounts.
So how can Blu Sky help?
Firstly yes, we do R&D Tax Credit Claims – of course we do!.
We hosted one of the first visits to the North East by the HMRC specialist R&D team, back in (crikey, who remembers) 2011? 2012? We work with a large number of tech and digital businesses. Back in those earlier days we calculated that our R&D uptake was 10x that of the average accountancy practice.
For further details feel free to get in touch or if you’re a current client, reach out to your Client Account Manager.