Unlocking revenue from existing clients is always a faster, easier way to boost income than chasing new business. Yet, many accountancy practices are missing significant revenue opportunities due to their lack of confidence in research and development (R&D) tax relief.
The result for clients in not addressing the issues is not simply missed income. With HMRC cracking down hard on fraudulent claims prior to introducing more rigorous R&D tax processes in April 2023, practitioners can reduce the risk to their clients of interrogation over bad claims.
As a simple rule of thumb, if the technical difficulties were not hard to overcome, it isn’t R&D
Required skills
The R&D tax credit process is less prescriptive and more open to interpretation than any other area of tax regulation. But it is not beyond the comprehension of a qualified accountant – or even a trainee.
The primary skill required is an understanding of what HMRC means by R&D. The use of science and technology to solve business problems is not limited to astrophysicists or Formula 1 engineering. Businesses of every size are undertaking R&D activity every day, yet many do not make a claim.
Client knowledge
Your in-depth knowledge of your clients’ activities puts you in the perfect position to identify those that are most likely to qualify for R&D tax credits. There are also tools, such as R&D tax claim preparation technology, that can help you identify the top targets in your client base.
Once you are familiar with HMRC criteria, you can have conversations about the client’s day-to-day R&D activities and identify opportunities for tax relief.
So it’s important to know what does and doesn’t qualify: for example, claiming 90% or 95% of an individual’s salary is not going to wash with an increasingly strict HMRC – holidays, time off and even tea breaks make it near impossible for any individual’s time to be 100% spent on this activity. A restaurateur making a menu change to add vegan options is not in the same league as a food manufacturer embarking upon the creation and production of an entire plant-based product line. While the latter will qualify for R&D tax relief, the former most certainly will not.
This is one area where accountants need to use their ‘professional adviser’ status to push back against clients – especially those who may have been led astray by overinflated claims in the past.
R&D claims cannot simply be cut and pasted year after year
The process
Since R&D tax was introduced in 2001, it has been best practice to prepare a detailed report for HMRC alongside the CT600 form and avoid follow-up questions. This report needs to cover the business background and technical goal for the claim. This includes the difficulties associated with the problem, and how it was overcome through science and technology, as well as identifying relevant competent professionals. As a simple rule of thumb, if the difficulties were not hard to overcome, it isn’t R&D.
It is also important to remember that R&D claims cannot simply be cut and pasted year after year – that will raise an HMRC red flag. R&D is not always a continuous process – companies will evolve and move on to the next phase of the business.
This is where the accountant’s soft skills really come into play. You need to be confident in the client interaction, especially if the best approach is to advise against making an R&D claim. The claim is the client’s claim: it is the client who will face HMRC if questioned. An adviser needs to have the confidence and ability to refuse to input spurious claims without creating any friction within the client relationship.
There is nothing holding accountants back from adding R&D tax to other client conversations except a lack of confidence. With HMRC pushing hard for a far more robust, trusted and evidence-based approach to R&D tax from 2023, the onus is now on accountants to gain confidence and provide clients with the trusted service they require.
