The landscape of Research and Development tax incentives has changed significantly over recent times, with HMRC recommitting itself to reducing the loss in tax revenues due to fraudulent or erroneous claims (currently estimated at around £311m per year by the National Audit Office). HMRC has already taken steps to reduce the exploitation of R&D credits by introducing the PAYE/NI cap at the start of this tax year.
However, there is even more change afoot, with new guidance in draft in relation to customer “subsidised” Research and Development, which could affect future claims of a significant number of SMEs. There is also the ongoing R&D consultation, which was announced by the Chancellor at the last budget. This could also spell out significant change to the look of R&D incentives going forward, “with nothing considered off the table”. HMRC has also plunged more resources into its R&D team, with 100 new compliance staff being brought in to assist with caseloads. This could up their capacity to manage up to 3,500 cases at any one time from 2021.
Factoring in the changes to the guidance and, by the law of averages, the increased probability of claims being examined by HMRC, the need for expert assistance has never been more essential.
We have a five-question checklist to run through when picking an R&D advisor:
- ARE THEY ACCOUNTABLE TO A RELEVANT PROFESSIONAL BODY?
There is a common misconception that the R&D advisor marketplace is regulated. Indeed, a study undertaken by YouGov commissioned by Forest Brown, showed that 90% of business owners surveyed thought it was regulated by a professional body. This ignorance is the main reason behind the rise of the spurious advisor who feeds off this assumption of legitimacy. In the absence of a specific R&D governing body, you need to look for advisors who are regulated by other relevant professional bodies such as the ICAEW, ACCA, or CIOT.
- DO THEY AVOID GENERIC QUESTIONNAIRES AND TEMPLATES?
The nature of R&D means that you as a business are doing something which is truly unique or innovative and this needs to be fully understood to be clearly explained in the technical justification document, which is what HMRC judges your claim on.
A significant part of that report is the breakdown of the qualifying costs, which needs to be justified with evidence. Therefore, if the extent of contact with your R&D advisor is to fill out a generic form without any detailed background conversation, then it is unlikely that they will be able to argue your case. A good advisor should know the scientific and technological advances of your projects and how your business sets itself apart.
The more spurious advisor may try to win you over by telling you how big your claim will be without access to any financial information. In this case you must ask yourself what is the quality of the information that is filtering through to HMRC?
- CAN THEY DEMONSTRATE A GOOD RELATIONSHIP WITH HMRC?
A question that I am asked a lot is – “What is your HMRC enquiry rate?” I think this is the wrong question to ask as not every claim is reviewed by HMRC, particularly if the size is below or in line with the industry average. Therefore, having a “0% enquiry rate” isn’t necessary a badge of honor. Likewise, having a claim subject to an enquiry by HMRC is not necessary a sign of an incompetent advisor, instead they should be judged on how they respond to said enquiry. If there is evidence of a claim being upheld even after an enquiry, that suggests a better-quality advisor than one which boasts a zero-enquiry rate.
Therefore, bad advisors are more likely to draw your attention to the former whilst good advisors will do so to the latter.
- DO THEY SHARE THEIR FINDINGS WITH YOU?
There are three schools of thought used by R&D advisors. They will either:
- Brief their clients on what needs to be included in the technical justification document, and then review it before it is submitted to HMRC.
- Prepare the technical justification document in collaboration with the client, with the client getting final approval before submission.
- Prepare the technical justification document without consultation or approval by the client.
The first two are generally accepted practices in the industry, whilst the last one is the hallmarks of a spurious advisor. They may try and justify it as, them protecting their report from plagiarism in future years. However, as a company director and a professional you need to understand what your qualifying costs are on the claim (so you can sign your CT600 safe in the knowledge it is accurate), as well as the evidence you present and how they fit within the guidance.
- WILL THEY DEFEND SHOULD HMRC OPEN AN ENQUIRY AS PART OF THE FEE?
Another common occurrence with bad advisors is that they disappear when a HMRC enquiry comes through the door, or they will defend you but ask for an additional fee, despite taking a generous cut of your resulting rebate.
However, good advisers tend to take a more holistic approach to the claim process and consider any enquiry as part of the same engagement. Hence why this question is so important, as the company will then need to put other contingencies in place, such as purchasing QDOS insurance. It is always good to review any advisors’ letter of engagement and terms and conditions, before signing anything.
Hopefully this checklist will serve a useful resource when you are thinking about engaging with an R&D advisor. If you want to know how Robson Laidler stack up against these questions, feel free to get in touch with our R&D specialist Jack Spoor at email@example.com and check out our advisory team.