Whether you’re an accountant or R&D Consultant, when it comes to delivering an R&D service to your clients, there’s a lot to consider. Delivering a great customer experience, clearly defining roles and responsibilities, managing expectations and getting it done on time are all important … but, what’s arguably even more important is making sure that the process works for you.
So what are your options and what’s best for you? Based on feedback from our customers, here’s a round-up of some observations on the various models for delivering R&D tax credit consultancy in 2020.
1. Full Outsourcing
This is the starting point for many. Most specialist R&D consultants will offer a commission to accountants for referring work to them, and this can be quite lucrative.
+ Convenience. You can concentrate on everything else on your plate, letting the specialist prepare the claim.
+ Good if you only see the occasional R&D claim e.g. 1-2 a year.
+ The specialist is usually (but not always!) responsible for defending the claim – at their cost – if HMRC raise an enquiry.
[-] Specialists are usually paid a % of the tax benefit. This means they are incentivised to make the claim as large as possible – regardless of the risks to your client. Many will ‘push the envelope’.
[-] Specialists have relationships with other accountants, and some of the accountants we speak to have had specialists refer their clients to someone else.
[-] If your client has a bad experience with the specialist, that reflects on you. Often, “bad experience” seems to relate to a recognition that the amount of work put in by the consultant didn’t reflect the fee they charged.
2. Self Delivery
In this approach, you spend time with your clients to work out the extent to which they qualify, interviewing staff, maybe looking around the premises, getting a feel for the business. You produce a report detailing the eligible work and a spreadsheet that gives a breakdown of the claim’s expenditure. This process relies upon a detailed knowledge of HMRC’s R&D tax guidance as you’ll need to interpret whether your client has relevant, eligible activities before you can account for the claim. Charging models are often on a contingent basis, from 5-30% of the tax benefit you recover for your client.
+ This model can be highly profitable if you find the right clients. Contingent fees can be in six figures for larger SMEs, and are rarely below £2k.
+ Many companies who’ve not previously claimed prefer ‘no win no fee’ arrangements, seeing it as a low risk way to access funds they weren’t expecting.
[-] Lots of people are offering this service now, so it can be hard to differentiate yourself. (Lots claim “Industry experts! 100% success rate! No win no fee!”)
[-] Fee rates are falling as competition intensifies. Depending on local competitors, you might find yourself lowering rates to rock bottom to win work.
[-] It’s time intensive, and claims can take weeks or months to prepare. Most of that is dead time, waiting for clients to respond with the information you need.
[-] Even when you’ve been authorised by your client to speak to HMRC, it can be hard to find out when the claim has been processed – and therefore know when to invoice.
3. Using Software “in-house”
This approach uses software to perform some or all of the R&D claim preparation process, and often involves using it sat alongside the client in an R&D meeting. Alternatively, you might send clients spreadsheets or Word documents to capture the information you need, then enter it into the R&D software on their behalf. You generate the report, check it for accuracy and perhaps add your own branding or content, then present it back to the client. This can help you to generate very high margins, especially if you are able to maintain a high contingent fee.
+ You may be able to keep your fees high whilst still making time-savings on the report production.
[-] It’s very slow and inefficient to ask clients questions and then manually enter their answers yourself in to the system, so this approach doesn’t work too well if you’re processing lots of claims each month.
[-] Asking a client to wade through a large spreadsheet or Word document probably isn’t the nicest experience for them, and they lose the interactive element of good software.
[-] R&D tax is a competitive market, with lots of price pressure. Your customer might ask you to justify the premium price you’ve charged them if you are spending less resource time preparing claims using technology, particularly if they are approached by multiple providers.
4. Using Software to collaborate with clients
In this approach, you’re open with your clients about using software to prepare R&D claims and you involve them in the process. You brand the software with your logo, switch on white-labelling so that the URL matches your existing domain, and invite clients to work with you remotely on the platform. You either ask them to enter the information in their own time and then check their answers, or work through the questions together online. Typically this work is charged on a competitive, fixed fee basis and is difficult for traditional competitors to compete with.
+ Your lower price makes you irresistible to local companies who’re paying higher rates to your competitors. You win new business by comfortably undercutting.
+ Asking clients to enter their information themselves is very time efficient and if you use the right software, they will be taken through a very simple, highly structured process that will ensure that they cover all of the areas that HMRC are interested in. Once they’re done, it doesn’t take long to review their answers to check for red flags.
+ White-labelling (giving the app a URL like app.myfirm.co.uk) allows you to present the system as your own, making it easier to justify your fees.
+ Clients who’ve experienced how long traditional consultancy takes will enjoy the time-savings of using software – and appreciate the lower costs of making a claim.
[-] Activating white-labelling is simple, but usually requires an IT person to set up.
[-] It can take a few claims before you get used to using software and have ironed the wrinkles out of your business process – stick with it and the benefits are there to be exploited.
There’s certainly no ‘right’ way to do things, but however you choose to do it, selecting the right model will result in higher job satisfaction for you, a better experience for your customers, and a profitable and sustainable revenue stream that helps you grow your business.