When it comes to selecting an R&D tax credit provider, the task is usually assigned to a company’s CFO, or in smaller organizations, the owner. The selection process is typically based on receiving recommendations from a trusted advisor, business associate or, surprisingly, through one of your competitors that mentioned they received a large sum of money.
If you fall into one of the three categories above, we encourage you to ask yourself: ‘What do I want in an R&D tax credit provider and what value does the provider bring to my company’? Like most providers in our industry, there is a wide range of service offerings within the R&D tax credit provider community.
No Shortage of Offerings
- There are providers that will only review R&D claims, leaving the onus of the claim preparation on the taxpayer;
- Other providers prepare the technical narrative and are unable to effectively cost out and maximise the R&D claim, leaving the task to the taxpayer;
- There are providers that provide a full array of R&D tax credit claim services for SELECTED industries only;
- There are also a variety of providers that may not defend the claim should HMRC make an enquiry; and
- There are providers who, in addition to R&D tax credits, help you obtain other government assistance by helping you identify and apply for various available grants related to hiring, training, marketing and business expansion
As a company that has been in this sector for a little over three decades, we can clearly advise that there is a stark difference in the quality of service and depth of business perspective between a consulting firm that has prepared 10,000 claims and a firm that has prepared only 100.
When it comes to selecting an R&D tax credit provider, the best fit and value for any company is a provider that can perform the following:
- Minimise discussions to no more than 45 minutes weekly for claim preparation;
- Advise what activities are eligible to claim;
- Maximise the monetary value of the claim;
- Prepare the claim and the supporting evidence with limited assistance;
- Minimise the risk of claim review/rejection by the HMRC, especially given that now more than ever, HMRC comes knocking for an enquiry based on continued increase in the number of claimants;
- Conduct the services at a fair contingency arrangement, whereby there is no risk to the taxpayer should a claim be denied by HMRC.
Some common scenarios you might encounter when comparing your options:
- Provider A charges 10% of the successfully claimed amount and provider B charges 20% of it. Should you choose provider A? What if the claim provider B can put together will fetch only £50K, and the claim by provider B double the amount, £100K? Your net benefit with provider A will then be £45K, and with consultant B £80K. You get what you pay for. Providers in this industry that charge you much less than the standard arrangements end up cutting services or do not have the expertise to conduct the services the right way. For a 10% success fee you are likely working with a provider who is getting you to put the claim together and merely reviewing your work, but more importantly your claim is not being maximised.
- Provider C creates a claim, where they observe all the R&D eligibility rules and clearly showcase technological uncertainties, systemic investigation, etc. Provider D stretches and bends the reality of your work with the sole purpose of increasing the claim value, and with only lip service paid to eligibility rules. How will you feel when HMRC makes site visits for the claim when an aggressive claim has been filed? Under current rules, HMRC imposes penalties when R&D claims don’t adhere to its rules.
- Provider E might offer a different service level than Provider F. For example, Provider E might require you to prepare the project narratives and supporting evidence yourself, or might not provide any support in case of a review of your claim by the government. Whereas Provider F might offer additional services for their larger arrangement, such as real-time claim preparation and project documentation, preparation of the project descriptions through conducting interviews with your staff, and offering full claim review support.
Key Competencies to Look For
A professional and seasoned provider that claims to possess deep insight into the ups and downs of tax credit return and government expectations should be able to review all of your projects and explain why they chose certain projects for R&D tax credit claims and not others. This is critical. You should feel 100% confident that you have claimed everything you can under the R&D tax relief program.
A good provider that does his/her best for your company’s eligibility should prepare the claim in a way that highlights the technological aspects of your projects, which may involve grouping activities from multiple business projects into different technological projects to showcase incremental technological advancements across a particular area of technology. However, you must also be able to understand and recognise the activities included in the claim and how they correlate to your business projects. You will have ultimate say in deciding which costs are allocated to the R&D projects and you will be the one signing off on the accuracy of the information in your tax return. Your provider should be able to explain this to you clearly and concisely.
Prior to submitting the claim, the consultant should walk you through the claim and demonstrate how all projects were considered to maximise the claim. An indicator of a provider’s dedication to service quality is their willingness and ability to take a seat in HMRC review meetings. However, more importantly, the provider should have a good procedure for HMRC enquiries. This includes coaching and mock interviews prior to any HMRC discussions or site visits. The provider should also work with you to make sure you have the appropriate documentation at the HMRC review and take the lead in the meeting to explain your situation. HMRC will ask leading questions to try to trap you into answering a question incorrectly so they can deny your claim. Often, the question appears innocent and you are not even aware that you are providing HMRC with a response that can allow them to deny your claim.
Finally, since HMRC requires contemporaneous evidence, the consultant should offer a process to identify, capture and document the R&D claim while you do the work. This process should:
- Be easy to use
- Capture the work contemporaneously to when it is carried out
- Augment the system you already have in place
- Create additional information for your business that is useful in product development, not just for R&D claim.
Take the time and ask yourself the following:
- Am I 100% confident that we are claiming all the R&D projects and costs we can?
- Do we have a system to identify, capture and document R&D on a real-time basis that integrates well with other product development processes?
- Will our R&D provider be there when HMRC comes in to review the claim? and are we confident the provider has a good process and reputation with HMRC to defend our claim?
If the answer to any of the above questions is no, you should consider finding an R&D provider who has a holistic approach to delivering services as explained above. We find that we are one step ahead of our industry as we advise our clients to allow us to undertake the R&D tax claim services as your accounting period progresses.
Our experienced funding consultants can provide you with the expertise required for connecting innovation with your bottom line. An integrated approach, a result-oriented process, and a comprehensive range of services help optimise your chances of success.
For a complimentary assessment of your company’s R&D claim, or an assessment of how you have documented claims historically, contact the author:
[email protected] / (0) 203 002 0089. Ask about RDP’s Innovation Connection Programme, our real-time R&D tracking system.