How do you spot research and development projects within your client base?
Running an R&D tax service in-house helps you move away from risky outsourcing strategies, win new business and drive growth for your practice.
Tune in to our webinar on the 20th August at 12.30pm to join Richard Edwards and Jen Badger from WhisperClaims where we’ll be discussing client eligibility.
Key discussion highlights
Identifying eligible clients is the first step towards running a successful in-house R&D service. Learn how to spot innovation within your client base and across some of the most unlikely sectors in the UK.
Dealing with borderline cases: Innovation happens where you least expect it. We’ll be testing your knowledge using real borderline cases.
Exploring sector based examples: Take a deeper dive into the more unusual sectors you might come across within your client portfolio.
Why tax relief isn’t just for white lab coats: We’ll be de-bunking myths and common mis-conceptions about the scheme.
Knowing when not to claim: Look at some real life examples and why they might be rejected by HMRC
New Product Development and the R&D tax relief scheme
Within the world of R&D tax relief, there can be some confusion about what constitutes eligible work. While we’ve covered the basics before, we thought we should go into more detail about one of the thornier aspects of this: what’s the difference between New Product Development (NPD) and eligible R&D, and can NPD ever be eligible?
What is NPD?
While R&D and NPD can often be used interchangeably, there are some distinct differences between the two. New Product Development is the entire process of developing a new product, from initial market research, through design, development, manufacture, marketing, all the way to sales. It can be the creation of an entirely new product or a process to update an older product.
R&D, on the other hand, is the act of creating entirely new science, technology or technical knowledge and developing that into a saleable product. It often, but not always, constitutes the development phase of NPD. From HMRC’s point of view, only the part of R&D that involves seeking an advance in science or technology and overcoming technical uncertainty is eligible for R&D tax relief.
Can you have NPD without eligible R&D?
Yes! In fact, this is often the case. Much NPD involves tweaking or updating existing products, which can be done without any R&D whatsoever. You also see a lot of NPD that does require some R&D, but this R&D isn’t eligible. This is usually where the R&D doesn’t seek an advance or doesn’t involve significant technical challenge.
So, is NPD ever eligible for R&D tax relief?
The entire process of NPD is not eligible for R&D tax relief. However, within NPD, there could be eligible R&D, as long as this R&D meets HMRC’s eligibility criteria. The key thing when claiming for NPD projects is to focus in on the eligible elements and ensure that no costs are captured from any other phase of the project.
Can you give me some examples?
A great example of non-eligible NPD would be the case of a bakery switching from making cakes to making bread. Bread-making is an established science, and all of the information needed to do this is in the public domain. This means that, although bread is a new product for the bakery, there’s no eligible R&D.
Another example of NPD without eligible R&D is where the aesthetic appearance of an existing product is changed without the need for any underlying technical change. This would apply, for example, to new window designs that use established production techniques.
Mobile phone development is a good example of NPD with elements of eligible work. Each time Apple goes through a NPD process and releases a new iPhone, it’s likely that some eligible R&D will have taken place. However, only a fraction of the cost of NPD would be eligible and would reflect how much cutting-edge technology was developed to make the new iPhone possible.
At the extreme end, new products release in cutting-edge industries, such as robotics, are likely to have involved intensive R&D efforts, and, especially where prototypes or first-in-class items have been produced, a large proportion of the NPD cost is likely to be eligible for R&D tax relief.
As with all R&D claims, the key is to stay focussed, and help your client to focus, on the underlying advances in science or technology that made the NPD possible. Ask about failures, costs overruns, prototypes and technical challenges – if they can tell you about any of these it’s likely that eligible R&D has taken place!
Brush up on the fundamentals of the R&D tax relief scheme
Streamline your claims processes and get expert advice on the R&D tax relief scheme.
Here at WhisperClaims, we’re always trying to think of ways to enhance our app for our customers. One of these enhancements relates to our User Experience / User Interface (UX/UI), which very broadly translates into “is our app nice to use and does it look good?”
Our exciting news is that we’ll soon be launching the next version of our User Interface, which will look simpler and cleaner. Almost all of the functionality will remain the same (so you don’t need to worry about re-training!) but we’ve taken the opportunity to make the Collaboration section even more intuitive.
We’ll be rolling out the new interface within the next 2 months, but in the meantime we wanted to give you a quick sneak peek at what’s coming. We hope you agree it looks nicer, and can’t wait for you to see the real thing!
Your R&D tax relief questions answered
Thanks to everyone who joined our Webinar on the 23rd July to discuss the ins and outs of running an R&D tax service in-house. As promised, here’s a summary of the questions asked and our responses. For any further enquiries please contact us at firstname.lastname@example.org.
Q1,”In terms of enquiries we are not seeing any R&D enquiries and some of the R&D work that we have seen, completed by boutique firms, hasn’t been good. a) What is HMRC’s approach on R&D enquiries? b) How many enquiries have you seen? c) Do they only look at claims above a certain limit?”
a) HMRC’s initial approach is usually to seek to engage with you or your client on an informal basis. They might call with a few questions, or send you a list by email. Many informal enquiries can usually be resolved relatively quickly by a responsive advisor. Should HMRC not get the information it’s looking for quickly, it may open a formal enquiry – this entails deadlines and the potential for penalties.
b) We’ve seen a number of enquiries over the years, but assess the enquiry rate to be very low (perhaps 1-2%) given the large number of claims and HMRC’s limited resources. In an enquiry, however, the standard they apply is demanding; expect hair-splitting!
c) In our experience, claims with a tax benefit of more than £50,000 are likely to attract greater scrutiny (although not necessarily an enquiry).
Q2, “Is there any evidence of claims being delayed due to the disruption in normal business?”
I think the opposite appears to have happened – HMRC have accelerated the processing of claims in an effort to rush support to SMEs at a time of national crisis.
Q3, “In terms of record keeping for R&D activities & costs, what does HMRC expect to see in an enquiry? What level of detail do they require?”
Going into an enquiry, HMRC tend to be more focused on the company’s level of understanding of the guidance and how it’s been applied to their projects and activities. They want to get a feel for how close the company’s definition of R&D is to their own. Once that’s been established, they’ll look at how the costs have been collected. They don’t necessarily expect a first-time claimant to be capturing costs perfectly, but will expect them to improve their process over time to become more accurate.
Q4, “How can we get the eBook that you mentioned?”
Q5, Are you allowed to name a competent professional from the specialist IT subcontractor company?
You can do so, but this might not work as well as you hope. HMRC might take the view that if your client (Company A) has given the specialist IT company (Company B) a contract, it’s up to Company B to determine how to implement that contract. If Company B is able to do so simply by using existing tools, techniques and knowledge, then science hasn’t been advanced and there won’t be a claim for R&D tax relief at all, by any party. Conversely, if Company B has conducted its own side-project to develop new-to-the-industry knowledge which it has chosen to employ in the satisfaction of the contract from Company A, it’s likely that HMRC would deem eligibility to lie with Company B.
Q6, “As an advance also applies to appreciably improving an existing process or technology, is there an argument for appreciably improving software & computer science for software projects you are carrying out (re bespoke back office software built for your company)”
Yes, but all the same rules apply. You’d be looking for competent professionals (i.e. software developers, or in larger projects, software engineers) who are able to articulate:
a) The limitations of existing technologies and platforms.
b) What they seek to improve and why that’s considered to be an appreciable improvement over those existing technologies.
c) Details of the technical challenges making that advance difficult to achieve.
Q7, “Who is the final arbiter on validity of technical uncertainty within HMRC if a company disagrees with a HMRC challenge?”
If agreement can’t be reached, then the next step is a Tribunal. However, these appear to be extremely rare.
Q8, “If the IP stays with the company who has sub-contracted the work out to a competent individual – would the company not be in a position to claim R&D”
IP is more an indicator of where eligibility lies, rather than a hard and fast rule. For example, most companies commissioning the development of a software system will specify that they own the IP. However, it’s possible (and indeed common) for a company to own the IP to a system without having detailed knowledge about how their system has been implemented from a technical perspective. This technical ‘know how’ tends to reside within the software development company irrespective of what is specified in commercial contracts.
Q9, “I am registered for the 2.5hr R&D course at the end of Aug. Would you happen to know if that course will cover everything to start our R&D function in our firm”
Great, thanks for booking!This course focuses on the R&D scheme itself, covering a wide variety of topics and what we regard as the most important areas. This will certainly make you a lot more confident in taking this service to your clients, but it doesn’t touch on commercial aspects, such as what to charge your clients or how to market to them. (Please contact email@example.com if you are interested in this type of help.)
Q10, “How do you avoid making a claim for the same R&D via subcontractors ?”
If you represent both parties, our recommendation for that is to choose a side by deciding where eligibility lies. For example, if the commissioning company is well aware that R&D (as defined by HMRC, rather than the more general accounting definition) needs to take place, and the contract clearly specifies that, then the claim would probably belong to the company paying for the work. Conversely, if the commissioning company was merely creating a specification and it was up to the specialist contractor to decide how to implement it, then the R&D – if there was any – could be argued to lie with them. You definitely don’t want to be in the position of arguing that both parties can claim. This issue is probably most uncomfortable if you are the accountant to both the commissioning company and the subcontractor!
Otherwise I’d say just focus on doing the ethical thing for your client and let the other side worry about their claim.
Q11, “Would there be also recording for the course on August? It will be good because we can refresh ourselves”
We don’t have plans to record those at present, as those courses are premium content and only available on a live basis.
Q12, “Apologies if I missed this at the beginning but can you give a bit more detail on HMRC’s point that R&D should ‘advance the overall knowledge or capability in the field of science or technology and not just the company’s own state of knowledge or capability’?”
Yes, to get R&D tax relief, the company must be seeking to make an advance relative to a baseline level of technology (as opposed to its own state or understanding). What this means in practice is that companies should say: “Here’s what’s commonly done in our industry, and here are the drawbacks and limitations of those approaches. In contrast, here’s what we’re trying to do, and this is why it’s better than those existing methods / techniques / knowledge etc.”. Companies don’t get tax relief for falling into line with what is already accepted to be common practice e.g. by modernising operations by buying new machinery to catch up with competitors.
Q13, “Does this mean that HMRC expect you to be making your advance made available to the wider industry? How do you prove you’ve advanced the wider field when you have company trade secrets that are not always readily available?”
Your advance doesn’t need to be made available to the industry (and in practice all companies will seek to closely guard their new technical developments). For that reason, it can be hard to know what knowledge or capabilities other companies have, because it’s hidden knowledge. Conversely, in most industries, there are a number of commonly accepted and well-established ways of solving problems, and this would be the technological baseline. The key here is that to the best of its knowledge, the company regards what it’s doing as an advance relative to its competitors.
When talking to HMRC about baselines, it’s usually sufficient to say that the company has checked what’s in the public domain and made best possible use of existing knowledge prior to their R&D commencing. (Finally, HMRC’s guidance is clear that companies can apply for relief even if it’s known that competitors have made a particular advance, but it’s not clear how.)
Brush up on the fundamentals of the R&D tax relief scheme
Streamline your claims processes and get expert advice on the R&D tax relief scheme.
Can I help my clients get their R&D tax relief sooner?
Companies are always keen to improve cashflow, and R&D tax relief can be a great way to do this – they can either bring cash in as a tax credit or reduce their tax bills. For companies struggling in the current economic climate the timing of this can be crucial, so here are our tips to making sure that your client gets their benefit as soon as possible!
Has the claim already been submitted to HMRC?
If the claim is already with HMRC, there’s very little you can do – the claim will be processed when the claim is processed and that’s that!
Has the client’s year end passed?
If the client’s year-end has passed, you’ve got an opportunity to get the claim in quickly! This does, of course, depend on your client cooperating and getting all of their financial year end information to you. Informing them of the size of their potential tax benefit could be a way to incentivise them to move faster, as can making sure your R&D claim process is quick and easy for both you and your client.
Is the client part-way through their financial year?
If your client is still part-way through their financial year, you’ve got a great opportunity to make sure that they get their money faster once they hit their year-end. Encouraging your client to keep clear records about the projects they have undertaken during the claim year, alongside details of money spent on R&D, can substantially reduce the time needed to prepare a claim. You can even go as far as advising them on how to set up their financial reporting and cost codes to make this as simple as possible come year end.
However, if your client is still six months away from their year end and desperate for cash, no amount of advance claim preparation is going to help them. This is where you can deploy the final weapon in your armoury – a change of financial year end. If you know that they’ve racked up significant R&D costs over the financial year so far, it could be advantageous for them to shorten their financial claim year and make a claim now rather than waiting for months!
Of course, it’s always better to do a little of everything – make sure you have a slick and robust process for preparing claims and taking the time to make sure your clients have the processes in place to properly record their projects and spending will be beneficial to all, no matter what the economy gets up to.
Brush up on the fundamentals of the R&D tax relief scheme
Streamline your claims processes and get expert advice on the R&D tax relief scheme.
Coronavirus Job Retention Scheme and R&D tax relief
The Coronavirus Job Retention Scheme (CJRS) was launched in March 2020, and the cornerstone of the Government’s support to businesses during the Covid-19 crisis. It originally enabled employers to furlough employees and claim back 80% of the salary costs of these workers from the Government. Version two of the scheme came into force in July 2020, and allows previously furloughed employees to return to work part-time, with the Government continuing to fund to portion of time these employees are not in work.
This scheme has been well received and widely utilised, but, as with all Covid-19 Government support, at WhisperClaims we’re interested in one thing – how will this affect a claim for R&D tax relief?
The good news is that the CJRS is not classified as State Aid, so won’t directly affect the ability of a company to claim SME R&D tax relief. Employees who are furloughed are also not allowed to work, so by definition cannot be doing R&D for the time that a claim is made under the CJRS.
However, what the CJRS will do is make it a lot more complicated to calculate staff apportionments for R&D tax relief claims. To illustrate this, we’ll work through the case of Bob, a laboratory technician. He works in the R&D team at company A, and spends 80% of his time on eligible activities. He was furloughed from 1st March 2020 to 30th June 2020, and has now been asked to return to work two days a week from 1st July 2020 to 30th September. From this point he expects to return to full time work.
So, how would we work out Bob’s overall R&D apportionment for the financial year Jan-Dec 2020? Let’s look at how he will have spent his time:
Five months full-time work
Four months completely furloughed
Three months working 40% and furloughed 60%
Overall, Bob will spend 6.2 months, or 52% of the year at work. Of this time, 80% is eligible R&D, so his overall apportionment would be 42%. Phew!
This kind of calculation is going to be needed for thousands of workers across thousands of R&D claims over the next year or so, so we’d recommend preparing yourself and your clients now! It’s also important to realise that any company that furloughed their R&D staff, or reduced their spend on R&D as a response to the crisis will see a proportional reduction in the size of their R&D tax relief benefit, so expectation management will be key to happy clients and accurate claims.
Brush up on the fundamentals of the R&D tax relief scheme
Streamline your claims processes and get expert advice on the R&D tax relief scheme.
Should my client surrender losses for an R&D tax credit?
Advising your client on how best to utilise the tax benefit from an R&D tax relief claim can be complicated, especially when it comes to surrendering losses for a tax credit. Here’s our quick guide on what you need to consider.
What is an R&D tax credit?
Put simply, an R&D tax credit is a cash payment given by HMRC to loss-making companies that surrender losses generated by the R&D claim rather than carrying the losses forward to future tax years. Guidance on how to calculate a tax credit is given here, but essentially a company calculates the amount of losses they can surrender and is then given 14.5% of this amount back in cash.
Why not take the cash?
For a loss-making company, the relatively quick and easy injection of cash received through an R&D tax credit can be a no-brainer – why on earth would they choose anything else? However, there are a few things to consider before committing to taking the cash:
Could the company carry the loss back?
If the company made a profit and paid corporation tax in the previous tax year, it might be better for them to carry the loss back and get a rebate on tax already paid.
Is the company part of a group?
If the company is part of a group and another member of the group is in profit and likely to have a large corporation tax bill, it could be that using group relief rules to surrender the losses to the profitable company is more beneficial.
Is the company likely to make large profits in the near future?
If the company knows that it is likely to make a large profit in the following tax year, carrying the losses forward to reduce future tax bills could be the best course of action.
However, if the answer to all of the questions above is no, then it’s likely that the company would benefit most from taking the R&D tax credit and enjoying the cash boost!
What’s the difference in benefit?
So, what does this all mean in terms of actual difference in tax benefit? Well, this depends on both the profit/loss position of the company, and whether the losses can be used as above.
Imagine Company A has £100,000 of eligible expenditure. How would its tax benefit differ for different profit/loss positions and for the scenarios given above?
*Remember than in this scenario, the company has already had a tax benefit of £9,500 by reducing their taxable profits to £0.
Looking at the table above, it again seems like a no brainer to always carry the losses forward or back or utilise group relief. However, if a company is deciding between carrying losses forward or taking the tax credit, there’s one more thing to consider – would a smaller amount of cash now be worth more than a slightly larger amount of cash in the future?
Consider a fast growing start-up company investing their tax credit in more R&D, for which they expect an internal rate of return of 50%. In the first scenario above, the £11,600 tax credit is worth £17,400 in a year’s time, significantly more than the benefit of carrying the losses forward!
Brush up on the fundamentals of the R&D tax relief scheme
Streamline your claims processes and get expert advice on the R&D tax relief scheme.
Obviously, in our line of work, we’re keen to see as many eligible companies claim for R&D tax credits as possible! However, there are always times when it’s best to pause and work out if it’s better for your client not to claim. Here’s our guide to when it might be best to advise your client against claiming.
1. They’re not eligible.
Easy one first – if the organisation or its projects don’t meet the eligibility criteria, then it shouldn’t be making a claim for R&D tax relief. This could be because it’s not a limited company, or is doing research into non-eligible areas, such as social science. It might also be that it does do work in an area of science or technology, but everything it does is routine.
2. They’re not comfortable claiming.
We occasionally talk to companies who have been pressured in to making a claim. They’re often manufacturing companies that know they don’t do eligible work, but have been told by unscrupulous advisors that they can ‘find’ eligibility and put in a claim. In these cases, submitting the claim risks an enquiry for your client and damage to your reputation with both your client and HMRC – it’s just not worth it!
3. You’re not happy with the claim.
Your client sends you claim documents prepared by a third-party provider, and you can immediately see that the claim isn’t right. It might be that you can see glaring discrepancies between the accounts you prepared and the claim, or that the work described in the documents doesn’t line up with what you know of your client’s activities, but you find yourself in a difficult position – either submit the claim and risk an enquiry, or refuse to submit and risk an upset client. It’s tricky, but we’d always advise against submitting a claim that you’re not 100% comfortable with, so it’s definitely worth taking the time to double check everything.
4. They could get better tax relief from other schemes.
Companies in the creative industries have other options for tax relief that might turn out be easier, more appropriate or have a better rate of return for them. For clients working in the areas of filmmaking, animation or video games especially, it’s always worth checking which tax reliefs they’re eligible for. You can only claim one tax relief on each set of costs, so making an informed choice as to which to go for is key.
5. They’re applying for a grant.
According to State Aid rules, only one State Aid can be applied to only one project. This means that not only can a company not claim SME tax relief on a project that has received a state aid grant, you also can’t claim State Aid grant funding for a project that has already received SME tax relief. It’s an unlikely scenario – most grant bodies won’t fund a project that has already started – but it’s worth bearing in mind.
6. The R&D work belongs to someone else.
Ownership of an R&D project can occasionally be a bit murky, especially in group companies or when subcontractors are involved. In the former case, it can be the case that the R&D is carried out on Company B’s premises, but all of the costs of the R&D are borne by Company A, usually the holding company. In this case, unless Company B reimburses Company A for the R&D costs, they wouldn’t be able to make a claim.
Companies that bring in subcontractors to do R&D on their behalf can also have difficulty working out who can make the claim, and it often requires analysis of the contractual arrangements to resolve.
7. The return on investment isn’t worth it.
There are several situations where the work involved in preparing an R&D claim is more than the R&D claim is worth. For example, start-ups with no staff and directors only paid in dividend aren’t likely to have significant costs. It can also be a problem for companies that do a lot of subcontracted R&D for large companies or that have received a lot of grant finding and therefore have to claim through the RDEC scheme, which can often make small claims economically unfeasible. We’d always advise taking a little time at the outset to ballpark the R&D expenditure before starting in earnest to prepare the claim.
Brush up on the fundamentals of the R&D tax relief scheme
Streamline your claims processes and get expert advice on the R&D tax relief scheme.
An HMRC enquiry is simply the process by which HMRC ask questions or seek clarification on certain aspects of an R&D tax relief claim. It can be triggered by something in the claim itself, or may be part of wider reviews or spot-checks that HMRC carry out to assess their own processes.
Can you avoid enquiries?
Short answer: no.
Long answer: Still no. HMRC reviews every tax return and R&D tax claim to some extent, and will always choose a certain proportion for more in-depth reviews. They also enquire into R&D tax claims as part of a wider review of a company’s tax affairs, so there’s no fool-proof way of completely avoiding enquiries. Having said that, you can do a lot to keep the risk of enquiry at the baseline level. Badly put-together claims are always at a higher risk of being enquired into, especially if they contain certain triggers.
What can trigger an enquiry?
Over our years of working in the world of R&D tax, we noticed there were a handful of things that hugely increase the risk of an enquiry:
Changes in claim size: Companies with a history of making claims of a certain size can find themselves facing an enquiry if the claim suddenly jumps in size. It can suggest to HMRC that the claim has been overstated, especially if there hasn’t been a similar increase in turnover or staff numbers.
Disproportionate claim size: Claims where the eligible expenditure is a large proportion of the turnover can look a bit wonky to HMRC. This is particularly true for manufacturing and food production companies, where HMRC would expect the vast majority of staff time and resources to be devoted to business as usual.
Claims from unexpected sectors: Claims made by companies that operate in sectors that would not traditionally be associated with R&D can raise eyebrows. This is especially acute for non-tech companies that have carried out software related projects.
Lack of alignment with accounts: It’s really important that the costs included in an R&D claim align with the published accounts for the claim period. If, for example, grants are listed in the accounts but this is not reflected in the R&D claim, this can trigger questions about whether the grants were used for R&D.
Doesn’t look like R&D: If HMRC read the technical narrative and can’t understand what R&D was undertaken or how it fits with the requirements of the scheme, they’ll have a lot of questions!
How do I reduce the risk?
The good news is that it’s usually easy to avoid these triggers, or mitigate the risks they introduce. First and foremost having consistent, reliable processes for pulling together R&D claims is key. This makes sure that nothing is missed and there’s a good audit trail of why certain projects and costs were included.
Once you’ve got the process worked out, it’s vital that it is well documented by the technical narrative. Ensuring that all of HMRC’s questions are answered without including any irrelevant information is key. For more information on how to write a good technical narrative read this article.
Finally, there will always be eligible claims that contain triggers that can’t be removed, so it’s important to mitigate them as much as possible. For example, if a company’s claim has quadrupled from one year to the next, include a sentence or two in the technical narrative explaining this increase. It’s good to acknowledge to HMRC that a claim might look unusual and answer any specific questions they might ask about this before they ask them.
How worried should I be about enquiries?
HMRC don’t publish statistics about enquiry rates for R&D tax claims, but we know from our own data and that of other providers that 0.5-2% of claims are enquired into. Even then, as long as you’re confident that the claims that you submit are robust and compliant, an enquiry is no reason to panic. In fact, we find that they can be a great opportunity to have a conversation with HMRC about their current interpretation of the guidance and how they like to see claims presented.
How does the WhisperClaims app help?
If you are currently using the WhisperClaims app, or thinking about it, here’s a quick recap of the features that will steer you in the right direction when it comes to preparing robust, HMRC-friendly claims through our platform.
A robust question-set: our questions poke into each corner of the legislation meaning you won’t forget to include important information in your client’s claim.
Consistent, reliable process: the app offers you a very structured and repeatable claims preparation process.
Clear indicators of eligibility: you’re faced with end points during the claims preparation process if your client’s project details do not meet the eligible criteria.
Objective decision making: the app provides you with an objective decision making tool, rather than relying on your subjectivity on whether a client may or may not be eligible.
Screen out borderline cases: you can use the tool to screen for borderline cases and avoid wasting time pursuing claims that may not be eligible.
Looking to create an HMRC-friendly R&D claims preparation processes?
Our ebook is loaded with helpful tips on how to streamline your claims processes and offers expert guidance on the R&D tax relief scheme. Download your copy.
CBILs and the Bounce Back Loan Scheme
The financial icebergs headed straight towards the UK’s SME R&D tax credits
In direct response to the Coronavirus pandemic, in March 2020 the European Commission adopted a Temporary Framework that defined and standardised the ways in which Member States can use State Aid to keep their economies afloat. It is under this framework (which runs until 31 December 2020) that the Government rushed out the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS).
While these schemes have been enthusiastically welcomed by businesses, both CBILS and the BBLS are Notified State Aid, leading to concerns amongst our customers that this is going to cause some serious headaches for R&D-conducting SMEs in the not-too-distant future.
What’s the problem?
The problem is that R&D tax relief for SMEs is also a Notified State Aid, and State Aid rules prevent you using more than one form of Notified State Aid on the same project, even if they’re used at different times, and even if you pay the money back. Just think about the consequences of that for a moment.
It means that:
If you’ve been claiming SME R&D tax credits, you won’t be allowed to use CBILS/BBLS finance to support any project that has received SME R&D tax relief.
If you haven’t been claiming for SME R&D tax credits yet, any project that you support using CBILS/BBLS won’t be eligible for SME R&D tax credits, either now or at any point in the future.
How will my clients be affected?
The impact of this is going to vary depending on the size of the SME, the number of R&D projects they have, and their ratio of R&D costs to total costs. To illustrate the likely impacts as clearly as possible, we’ve described a few different scenarios from our perspective:
An SME with one R&D project. Most of their business expenditure relates to this single project, for which they’ve been claiming SME R&D tax relief. Let’s say that the SME spent £80k in the claim period, and £70k of this was on R&D expenditure for a single project.
Question: If the SME gets £50k from the Bounce Back Loan Scheme, how should it use this money? The answer is that because its single project has already received a Notified State Aid (in the form of SME R&D tax credits), it should only allocate the BBLS money to its non-R&D costs, or to new projects that haven’t received R&D tax relief. This leaves it in a difficult position – it can’t fund its major activity without breaking State Aid rules.
Now let’s consider an SME with multiple R&D projects, none of which have received SME R&D tax credits. How should it best use its £50k of Bounce Back funding?
Well, the worst way to do it is to spread the £50k of BBLS money across its three R&D projects, as shown below:
Why is this bad? All of the SME’s three R&D projects have now received Notified State Aid, which means that the SME cannot claim R&D tax relief under the SME scheme. While the SME can still claim R&D tax relief on all three State-Aid-funded projects, this must be done through the less-generous R&D Expenditure Credit (RDEC) scheme, which is primarily used by large companies.
So, what would’ve been a better way to use the £50k Bounce Back loan? Concentrating the £50k in as few projects as possible is the way to go. In the example below, the SME uses the £50k to fund Project 1, leaving Projects 2 and 3 unaffected by State Aid.
This means that the SME could claim R&D tax relief under the SME scheme for Projects 2 and 3, and R&D tax relief under the RDEC scheme for Project 1.
What’s the best possible scenario? If the SME is sufficiently large to have substantial running costs that have nothing to do with R&D at all, the best thing for it to do is to use its BBLS funding against those. For example, let’s say they have £80k of non-R&D costs and the same three projects as above.
This time, the SME uses the full £50k of BBLS against its non-R&D costs; this leaves its three R&D projects unaffected by Notified State Aid, meaning that it can claim through the SME R&D tax credit scheme for all of them.
Important things to remember about Notified State Aid and R&D projects
The key things to remember are:
SME R&D tax credits, CBILS and BBLS are all forms of Notified State Aid.
You can only use one form of Notified State Aid per project, for the entire lifetime of the project. You can’t pay back one form to get another.
The effect of using Notified State Aid on an R&D project is to push the entire project’s expenditure out of the SME scheme and into the RDEC scheme, which gives a return of about 13p per £1 (before tax) rather than the 25-33p per £1 of the SME scheme.
When allocating any form of State Aid to R&D projects, the golden rules are:
If you can, first use the funding on non-R&D activities.
Concentrate the remainder of the State Aid on as few R&D projects as possible.
SMEs in the UK are rushing towards CBILS and BBLS as ways to sustain their businesses until some form of economic normalcy returns. The problem is, very few are aware of how these schemes will affect their ability to claim for SME R&D tax relief, and many will inadvertently breach the rules. It’s not clear how HMRC will respond to that, but they may have little choice but to follow the rules as written. As always WhisperClaims will stay on top of this information and will feed back to you when more information is available.
What should an R&D technical narrative include?
The aim of a technical narrative should be to convince HMRC that the claim is valid and answer any questions they might have about the claim, without raising any red flags.
The narrative should briefly cover the key points that HMRC are interested in:
Which areas of science or technology was the company operating in?
What technical advances did the company seek to make during the claim period?
What technical difficulties did it meet along the way?
Did the company use competent professionals to carry out the work?
Once you’ve covered these four points, you’re most of the way there!
Stick to the technical facts! HMRC don’t really care about the commercial aspects of the projects, so stick to talking about the underlying technology.
Keep it short! The best technical narratives tell HMRC exactly what they need to know and no more. The longer the report, the information HMRC have to ask questions about, and the more likely you’ll include irrelevant or commercial facts and figures.
Link to the costs. It’s always best to include some mention of how your technical narrative links to the costs included in your CT600 so that HMRC can see how the two hang together.
Leave no stone unturned… Having said that it’s best to keep the technical narrative short, we’d recommend including short, factual statements to demonstrate to HMRC that the claim has been thoroughly analysed and well put together. For example, even if a company didn’t receive any grants during the claim period, it’s still good practice to state that this is the case, indicating to HMRC that you understand the guidance and what is required.
What not to do
Include lots of padding. HMRC aren’t concerned about the qualifications of the person pulling the claim together, or reading long descriptions of the history and financial successes of the claimant company. In fact, including too much irrelevant information could make it look like you’re trying to hide something!
Focus on the commercials. As stated above, the technical narrative should be a technical narrative. Don’t include any information about the commercial aspects of the claimant company’s business unless it is directly relevant to the claim. Including too much of this kind of information can confuse the narrative and could lead HMRC to conclude that ineligible commercial costs have been included in the claim.
Blind the reader with science. Remember that you’re writing your report for an HMRC inspector who is unlikely to be an expert in the relevant field of science or technology. Make sure that the report is written in clear, easy to understand language, and avoid using too many technical terms or jargon. This way, the inspector can understand exactly why the claim is eligible without having to ask for expert help.
How does WhisperClaims help with technical narrative?
When we designed the WhisperClaims app, we started by thinking about the ideal technical narrative. We thought about what questions it would need to answer, and what it would need to cover, and then we sat down and wrote it. It wasn’t until we’d perfected the report that we started building the app!
These days, every report produced by the WhisperClaims app is a descendant of that first, ideal report. Using WhisperClaims to produce your technical narratives makes sure that all reports are robust and consistent, and directly linked to the costs that you have entered.
Brush up on your R&D claims knowledge
Our ‘Accountants’ Guide to Preparing R&D Tax Claims’ offers helpful advice on the fundamentals of the R&D tax scheme. Get your free eBook today.
The art of preparing R&D tax claims while working remotely
As we all adjusted to the current normal and get settled into working from home, I saw a lot of posts and blogs where people shared their beautiful home working set-ups. They had actual desks! And plants! Now, here at WhisperClaims we pride ourselves on our honesty, and I can honestly say that my home working set-up does not involve a desk of any kind. In fact, my workstation has become ‘wherever I can see the children and still type effectively!’
To illustrate this point, I thought I’d give you an insight into how I prepared WhisperClaims’ FY2020 R&D tax claim:
Goal: Set up my R&D claim from the sofa; Feed the kids!
5:00pm, on the sofa: Suddenly realise that the kids are quiet, and I have twenty minutes until I need to start cooking dinner.
Quickly sign in to WhisperClaims and set up our FY2020 claim.
Goal: Prepare an R&D claims report; Escape childcare carnage!
9:00am, in the garden: PE with Joe.
9:30am, at the kitchen table: Gasp for air. Catch up with the team over Zoom.
10:00am, at the kitchen table: Attempt to start filling out the R&D claim question set.
10:03am: The bickering starts.
10:04am: Throw snacks into the living room.
10:10am: Realise the snacks are not enough. Gather broomsticks, blankets, doll, doll’s pushchair, frisbee, laptop and chair and head down to the garden.
10:15am-11:15am, in the garden: Sit shivering in garden wearing winter coat, hat and gloves. Fill out technical questions. Pull salary details from Xero and enter into the app.
11:15am – 11:30am, in the garden: The bickering starts again. Put laptop down and arrange timed laps of the lawn.
11:30am: Give up. Heave all of the stuff back into our second floor flat.
11:45 – 12:00, on the sofa: Sit awkwardly with a child on either side of me watching cartoons. Enter and apportion the rest of the R&D costs.
12:00pm – 12:30pm, in the kitchen: Feed the ravenous hordes.
12:30pm – 1:00pm: Rare moment of peace while kids do crafts. Make space in amongst the chaos of craft materials on the coffee table for my laptop. Check through R&D claim, finalise and download report. Email to accountant while the going is good….
And that, my friends, was that. Half a day, two and a quarter hours of actual work, two happy-ish children and a complete R&D claim sent to our accountant – not bad at all!
Have you had your WhisperClaims demo yet?
Our fully automated, cloud-based software is capable of producing all the documentation needed to support an R&D claim – no matter where you’re located!
Why WhisperClaims qualifies for R&D tax benefit for advancement in software development
Our Operations Director Jen Badger explains why developments in WhisperClaims technology qualifies for R&D tax relief and why we’re making ‘an advancement in software development’.
At WhisperClaims, we aim to always walk the walk as much as we talk the talk, and it’s no different when it comes around to preparing our R&D claim. We’ve prepared three claims so far using our own software, and enjoyed every one!
But why do an R&D claim in the first place?
We’re a successful business with a growing client base and a robust product, so we don’t technically need to claim. However, there are two really good reasons for doing so. Firstly, it’s money that we’re entitled to, based on the eligible work we do developing our system, and what company would pass that up?
Secondly, and probably more importantly, it gives me an annual opportunity to do a real live test of the app. Now, of course I know our app well, in fact probably better than anyone else. However, I still like to use preparing our claim as an opportunity to put the myself into the shoes of our clients and to see it through their eyes. This gives me incredibly valuable insight into our user experience.
These two factors (a cash injection and insight into how the app works in the real world) plus all of the feedback and research we get from our customers, helps us invest in continuing improvements to our app.
In our development pipeline we have a host of changes and features we’re planning to build. Some are small, like tweaking the background calculations to adjust for the new rules around employment allowance, and some are a whole lot bigger.
For example, over the past few months we’ve done a lot of research into how we can improve the look and feel of the app to make sure our users get the best possible experience. This has led to a whole heap of changes to be made to all areas of the app, and we’ll be starting work on that over the next few weeks.
In addition, in response to the current circumstances, we’re kicking off a project to improve the collaboration side of the app. We want to make sure that this works seamlessly for all of our users, no matter how they prefer to engage with their clients.
All of this work involves, to some degree, making an advance in the software development science.
We’re pushing the boundaries of the technologies we use to make sure that our app is performant and robust, which will enable us to claim again next year for salary costs, some of our consumables and the consultants that help us with our R&D. I’ll be looking forward to preparing a claim for that work, and anything else we decide to do over the next year!
How Sole Associates reshaped their claims processes and brought R&D tax consultancy in-house
Sole Associates is an award winning firm of Accountants based in West Byfleet, Surrey, founded by Joe Sole. We recently caught up with Joe to find out how he’s reshaped his R&D service by implementing software. WhisperClaims technology has enabled Joe and his team to put robust checks in place and to easily identify eligible SMEs within their client portfolio.
Could you tell us a little bit about your firm?
Prior to setting up the firm, I had spent a number of years as a partner within a traditional firm of accountants, who at the time were delivering a compliance service. I set up Sole Associates because I wanted to offer something unique. At Sole Associates we’ve found that SMEs want business advice that enables them to look forward rather than just looking back. So we focus on finding new opportunities for them. We’re a team of 9 and have been going for ten years now, as of 1st April.
Did you have a knowledge of R&D before you started doing claims in-house?
We had limited knowledge at first, so we partnered with an R&D tax specialist to help us prepare claims for our clients. However, once we got to know the process and the work involved we realised it wasn’t that difficult and we could do the claims ourselves.
What processes did you adopt?
Before we moved our service in-house we did some training and read up on the guidance. We started using templated reports, but I always felt we needed something more than that to check if the client was eligible.
We now use the WhisperClaims platform because it gives us structure. It looks professional and we do it as a matter of course on every claim.
When you are doing claims in-house it needs to be robust, to be compliant and easy to put together. You don’t want to reinvent the wheel if someone has a solution already.
How do you spot eligible clients?
Often clients think they aren’t eligible, but once we start talking to them about what constitutes R&D we quite often find that there is a claim there.
We also place a lot of focus on being proactive with our clients. We have two meetings with them across the year – one before and one after the financial year-end. The midpoint meeting enables us to spot opportunities early, like identifying if projects could be eligible.
What sort of projects have you found are eligible?
Our clients range from SMEs who have claimed before and those who haven’t. We have an orthodontist lab that does a lot of R&D. They present seminars to dentists and do lots of research and testing. In that space we also have a dentist who is developing an LED gum disease treatment.
We have a road bike manufacturer. They improve carbon tech. A carbon advisor who does projects for McLaren in Formula 1. They conduct research to understand the characteristics of materials used in manufacturing cars.
There are clients who you wouldn’t expect to have a project but there is innovation that goes on all the time.
What are the benefits of using software to help prepare claims?
Leveraging technology has helped us to do more work without having to take on extra resources. It gives our client managers space to focus on our added value services rather than just compliance.
WhisperClaims is up to date with the rules and regulations, it’s robust and you can’t miss something. There are checks to see if a client is eligible and if the project qualifies, it keeps your service in-house rather than using someone external and it gives you control over the process. It’s not a big cost to have that comfort and it puts structure in place.
We’ve had no enquiries from HMRC and we’ve had all the tax back. For clients who haven’t made a claim before, we’ve found a claim. It’s had a big impact on some, probably more the smaller clients because the financial impact on them is larger.
How has having an R&D service benefitted your firm?
It has helped us grow the firm because we’ve been able to take new clients on. It creates good will with your clients because if you are bringing a claim opportunity to them they’ll talk about it with their friends and family. It generates good PR for your firm.
We are a small firm so when you are getting a £6-12k fee for R&D it makes a big difference.
What will you be focusing on in 2020?
2019 was a good year and we want to better that. We are much more in tune with R&D and where there might be a claim. One lesson we’ve learnt is not to prejudge where you think a client might have an R&D claim. Even if the client says “no I don’t think we are doing any of that”, probe them. Don’t take the initial answer for granted, ask more specific questions because sometimes you’ll be surprised.
About Sole Associates
Sole Associates is an award winning firm of Accountants based in West Byfleet, Surrey. They offer leading edge business advisory and compliance services to businesses and individuals. Established in 2010 with the aim of being at the forefront of a new generation of Accountants, Sole Associates is already one of only 40 firms nationally to be included in Steve Pipe’s book, ‘The UK’s Best Accountancy Practices’.
When does an R&D project start and end?
One question we get asked surprisingly often is how does HMRC define the start and end of an R&D project for R&D tax relief purposes. No wonder – HMRC’s definition is much narrower than you’d expect, and doesn’t line up with when a company would define the kick-off or end of an R&D project.
The HMRC guidance states that ‘R&D begins when work to resolve the scientific or technological uncertainty starts, and ends when that uncertainty is resolved or work to resolve it ceases.’ But what does this mean to a claimant, and how does it line up with the normal phases of a project?
In general, an R&D project goes through several phases – planning, research, development, testing, marketing and product release. Of course, there are often several cycles of research, development and testing before the project succeeds (or fails!). Different companies will call these phases different things, but in general the shape of an R&D project is pretty consistent.
How do these phases line up with HMRC’s guidance? Well, you can immediately discount the marketing and release phase – marketing spending is specifically excluded from the scheme. The R&D by HMRC’s definition must therefore end before this stage.
From here it’s a little more complicated, and hangs on the definition of a ‘technical uncertainty’. According to the guidance, ‘Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field.’
This means that it’s not enough for the technical staff not to know how they’ll achieve the project outcome, but also whether it is even possible using established knowledge and techniques.
The start of the project
Looking again at the project phases, it can therefore be seen that the start of a project can be a little fuzzy! It’s easiest to think of it as when the professionals working on the project have dismissed all of the standard ways of doing things and are embarking on work that will generate new knowledge. This might be during the planning phase, if the technical uncertainties are known from the beginning, or it might be during the research or development phases, once all of the established ways have been tested and shown not to work.
The end of the project
Once you understand what your technical uncertainties are, the end of a project becomes a lot clearer. The project ends when these technical uncertainties have been resolved, so at the point where, for example, a working prototype has been produced or the process shown to produce the required outcome. You can’t claim for spending to, for example, make the prototype look nice once you’ve worked out how to make it work.
The last thing to bear in mind is that the end isn’t always the end! A company might develop something and resolve all of their technical uncertainties, only to find that the final product doesn’t quite meet specification. If the redesign or rework throw up more technical uncertainties, the R&D starts again!
Coronavirus funding and R&D tax relief claims
A question we’ve been asked several times recently is, ‘how will taking up any of the current coronavirus business support funding affect a company’s ability to claim for R&D tax relief in future?’.
The short answer is that it depends on the funding. For example, the the ability to defer VAT payments won’t affect R&D claims. However, for the grant-based support schemes and the Coronavirus Business Interruption Loan Scheme it’s a little more complicated.
The long answer starts with a quick round-up of the rules around State Aid. Essentially, under EU rules, which we are bound by until at least the 31st December 2020, most State Aid is illegal because it distorts competition. However, the European Commission acknowledges that this is not always the case, and ‘good’ aid can be allowed as long as it uses certain mechanisms and is approved by the Commission.
So, it’s likely that most, if not all, of the grant-based support currently offered by the UK government to support businesses through the disruption caused by coronavirus will be classed as State Aid. The big problem is that these schemes have been fast-tracked, and therefore most haven’t been fully assessed or approved by the European commission. We do know that the Coronavirus Business Interruption Loan Scheme will be classed as notified State Aid.
The other factor to consider is the definition of ‘de minimis’ aid. For funding to be classed as ‘de minimis’ it cannot exceed €200,000 over a rolling three-year period. This could mean, for example, that the £10,000 and £25,000 grants to small businesses in receipt of rates relief would be classed as ‘de minimis’, whereas the larger grants, for example the Coronavirus Job Retention Scheme, may be notified State Aid.
How badly a company’s claim for R&D tax relief is affected by the coronavirus grant funding will depend on two things: what type of state aid the funding is deemed to be, and whether the funding is used to pay for R&D. In the current circumstance, the latter point will be difficult to argue, unless the company has suspended its R&D activities for the duration of the crisis.
This means that it’s really important for companies to note which R&D projects were live at the point of receiving any of the government funding. Any projects that are not live during the crisis or start after the funding is received should not be affected.
For the remaining projects, it’ll then come down to whether the funding is ‘de minimis’. If it is, only the amount of the grant will have to be claimed through the RDEC scheme. If it turns out to be notified State Aid, then the full eligible costs of whatever project it is used to support would have to be claimed through RDEC.
Here at WhisperClaims we’re keeping a close eye on the situation. We’ll update our users as and when more information is available, and will make sure that the app is updated to cover whatever funding scenarios result from the current situation.
Avoiding red flags & common mistakes
From time to time, before switching to WhisperClaims, Accountants often approach us looking for a second opinion on R&D claims reports prepared either by themselves or another provider. It’s a good way for them to get a second opinion, which helps to mitigate against HMRC enquiries, and, it keeps us current on how the guidance is being interpreted by the industry. All very positive!
Every now and again we do come across a report that makes us wince! There are some common mistakes that we thought we’d pull together and share with you – these are major misinterpretations of the guidelines that we recommend you avoid!
1. Confusing commercial details with technical and scientific details.
A report we recently reviewed had a whole section dedicated to establishing the technical baseline for the client’s projects, which is exactly what HMRC like to see. However, this section was full of commercial details about the company and the industry, and actually undermined the claim from the beginning by establishing that the company did standard work using off-the-shelf components, which is completely ineligible!
2. Assuming that trial and error is eligible.
Reports that use the phrase ‘trial and error’ multiple times to describe the work that the company does to establish which combination of components perform best for each application, can be a problem. Trial and error is almost always ineligible. To quote CIRD81900, ‘improvements, optimisations and fine-tuning which do not materially affect the underlying science or technology do not constitute work to resolve scientific or technological uncertainty’.
3. Claiming for software installation and optimisation.
This point is more common than you might imagine – an example being a company that has decided to upgrade their CRM system and claimed work as R&D. A report we recently reviewed detailed the analysis they did of available systems before making the choice to go with an off the shelf system. If they’d done this work and then discovered that there was no available system that was technically capable of doing what they needed, they might have had a claim, but installing and optimising a standard system is not an advance in worldwide science or technology. Again, CIRD81900 states, ‘A process, material, device, product or service will not be appreciably improved if it simply brings a company into line with overall knowledge or capability in science or technology, even though it may be completely new to the company or the company’s trade.’
4. Confusing commercial and technological uncertainties
Reports that list a number of ‘technical uncertainties’ including uncertainty regarding whether a project could be completed within the allocated budget. This is absolutely not a technical uncertainty by HMRC’s definition – ‘Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field.’
5. Using ‘Red Flag’ words
Red flag words used throughout a report, including ‘fine-tuning’, ‘trial and error’, ‘optimisation’ and ‘bespoke’. The quote in section two (above) explains why the first three of these should be avoided. ‘Bespoke’ is one we’ve learned is a red flag from our experience of claims and conversations with HMRC – it implies that the work done is specific to the company and doesn’t constitute a worldwide advance in science and technology.
The key thing to remember is that these issues are easily avoidable if you take the time to get to know HMRC’s guidelines, and make sure that your reports are produced by either people or systems that know what they’re doing. Here at WhisperClaims we put a lot of time and effort into making sure that our reports are robust, accurate and compliant with HMRC’s guidelines!
If you’re not already a WhisperClaims subscriber and want to explore our system or get a second opinion on how you are currently preparing claims, please feel free to get in touch. We’re happy to help!
WhisperClaims services to help firms support SME clients during coronavirus
As corona virus continues to spread many of our customers have told us that, come what may, they’ll be doing their utmost to help their SME clients stay in business and are focusing on those most in need of assistance. Fully appreciating the huge stress that some people are coming under, this got us thinking about specific ways we could help.
Help with new R&D claimants
To help take the strain off our most time-pressed accountancy customers, for the next eight weeks we’ll be dedicating resources to:
Helping you identify which Limited companies could benefit from R&D tax relief;
Screening those clients for eligibility and getting them set up on the system.
This will allow you to fast-track companies who haven’t claimed before.
More users and training
For the next 8 weeks we’re also relaxing our licensing rules to allow up to 10 people to use WhisperClaims for the price of 3 users. This enables not just the tax team to use it, but also staff who’re really close to your clients, such as Client or Account Managers.
We’re happy to on-board and train those new staff too, so that they hit the ground running, ensuring that all eligible companies in your portfolio get the R&D support they’re entitled to as quickly as possible.
Further support in processing claims – blending our expertise with yours
We’ve also been asked by several customers in the last few days whether our team could play a more active role in the delivery of their service. Jen and Richard are ex-R&D consultants and this is well within our capabilities.
Richard founded an R&D consultancy company called Jumpstart, now AGBI Ltd, in 2008 and was responsible for building the consultancy team from scratch.
Jen’s got a PhD in Immunology and worked on the R&D claims of 100s of companies.
If required, we can undertake the following on your behalf, freeing up your time to spend with those who need it most.
Explain to clients the rules, pitfalls and opportunities of the R&D tax relief scheme;
Walk clients through the system or their answers, ensuring they’re comfortable with their statements and compliance with the rules;
Review R&D reports or client data, giving you specific feedback on risks and red flags;
If you are extremely pushed for time, we can process all aspects of your client’s claim, providing you with the report and numbers for inclusion into the tax return.
If you want to discuss any of the above, you can get in touch on:
In these days of increased digitisation, working from home and generally more spread out teams and working practices, it can be difficult to pin down a time when all relevant people are available to meet face to face. In the case of preparing an R&D tax claim, this can be particularly acute given the need for senior members of the management team to be in attendance.
Happily, there are a plethora of specific and less specific digital tools you can take advantage of to make sure that you can remotely deliver the great R&D tax claim service that your clients expect. Here’s our guide on how WhisperClaims can help you to get the best out of your tools and clients and make sure you prepare accurate and robust R&D claims remotely.
Tools like Zoom and Skype have made it very easy to have ‘face to face’ meetings from anywhere! In preparing R&D tax claims, this enables you to talk through all of the work done in the claim period and gather as much information as possible in one go. It’s usually possible to record these calls too, so you won’t forget anything that you were told! However, there are some downsides. It’s easy to forget to ask key questions, and it can be difficult to verbally gather accurate information on costs. To mitigate this, you can have the WhisperClaims claim open in the background and enter the information as you go along, but this can lead to a more stilted conversation as you read out all of the options to your client!
Rather than read out the questions or risk missing vital information, many of our clients opt to share screens through tools like Zoom. Working this way your client can see the WhisperClaims question set and can give you the exact information you need, while you retain control of the software and enter the answers yourself. This is how we do a lot of our training and demonstration calls, and it can be a great way to gather information. However, it can mean taking up a chunk of yours and your client’s time, and you can only complete as much information as your client has available on the call.
Many of our users prepare R&D tax claims remotely using our collaboration feature. This allows them to invite clients to directly access the system by themselves and answer the technical and costs questions in their own time, saving huge amounts of time. Their answers can then be reviewed remotely, checking that everything they have entered is accurate and in line with the scheme guidelines before downloading the report.
Our users have used this methodology to drive complexity and time out of existing processes, or simply to avoid losing control over the claim by outsourcing to specialists. It’s a win-win for them and their clients as it means an efficient, cost effective service that allows the client to get best value access to this increasingly important tax relief.
Of course, in reality our clients use a combination of all of these methods to deliver the best and most appropriate service to their clients!
However you decide to use WhisperClaims, we’re here to give you support, advice and training to make sure you’re using the app in the best possible way.
Great news for R&D from Budget 2020
Yesterday’s budget was good news all-round for companies undertaking R&D! Not only has the RDEC rate been increased, but the looming PAYE cap on the payable SME tax credit has been delayed until April 2021, much to the relief of many small companies that rely on subcontractors to carry out their R&D.
The big R&D related announcement was the increase in RDEC. This means that large companies and SMEs with grants or other subsidised expenditure will now receive a benefit of just over 10.5% of their eligible spend on R&D, receiving £105.30 for every £1000 spent. This had been widely reported ahead of the budget, and will be welcomed by all RDEC claimants.
However, hidden in the detail of the budget was a more significant point for many SME claimants – the changes announced in budget 2018 that were expected to come into force in April 2020 have been delayed until April 2021. The proposed changes would have restricted the cash credit payable to three times a company’s NIC and PAYE liabilities for the year. For small, loss-making start-ups that often rely on subcontractors rather than paying salaries this would have been a major blow, so we welcome the delay and potential redesign of the cap.
Other than these points, the increase in employment allowance to £4000, coupled with recent changes that we detailed here will mean that SME claimants will be up to £130 better off.
Lastly, the government pledged to increase public investment in R&D to £22bn a year by 2025. While the specifics of how this will be spent are yet to be fully revealed, it’s great to see more money going into innovative work and research in the UK.
Stay in the loop
Stay up to date with news on the R&D tax relief scheme by subscribing to the WhisperClaims newsletter.
Is it better to take a grant or rely on R&D tax relief to help fund R&D?
We’ve written before about how grants can affect a claim for R&D, but even knowing this, it can still be tricky to work out whether it’s better to take a grant or rely on R&D tax relief to help fund R&D. It’s a tricky decision to make, but considering the following points should make it easier!
Grants are usually paid out in arrears, often on a quarterly basis. From a cashflow point of view, this means that a grant holder will see the benefit far closer to when the money is spent than with R&D tax relief. Depending on how quickly a company can pull together their accounts, R&D tax claim, tax comps and CT600 form, it can be over a year between spending money on R&D and seeing any tax benefit.
Another point to remember is that grants are often paid out in cold, hard cash, whereas R&D tax relief is often realised as a reduction in tax payable. Where this is usually of huge benefit to the company in the long term, it doesn’t offer the immediate positive effect on cashflow of a grant.
A claim for R&D tax relief has no mandatory reporting requirements. All a claimant needs to produce is a technical justification and a calculation of eligible expenditure once a year, and they’re done!
On the other hand, grant reporting can be time-consuming, lengthy and repetitive. Grant holders are usually required to submit details of expenses, milestones and project outcomes regularly during the lifetime of the grant, and even beyond this.
Where’s the tipping point?
Overall though, it’s usually best to both claim R&D tax relief and as many grants as possible to maximise R&D funding. However, it is important to know where the tipping point is, when taking the grant it will mean that the company is worse off overall. It’s a fairly complex calculation, but really only requires knowledge of the type and size of the grant and the expected spend on R&D.
Here’s a quick chart to show how grants affect the benefit received by a profitable company with an eligible R&D spend of £150,000. As an SME, this company would receive approximately £37,000 in R&D tax relief if they didn’t receive any grant funding.
First thing to note is that a company should always take a ‘de minimis’ grant if possible – a company receiving this type of grant and claiming R&D tax credits will always be better off. That’s because it’s only the amount of the grant that has to be claimed through RDEC, and all of the rest of the cost can be claimed through the SME scheme.
Second thing to note is that it’s a little more complicated when it comes to state aid grants. These grants push the whole project cost into the RDEC scheme for R&D tax, so taking a small grant can mean being worse off overall. For our example company, a grant of less than about £22,000 would actually cost them money, as they’d get a better return from just claiming R&D tax relief.
So, what does this all mean to an advisor? Well, the key thing is to make sure that you know what grants your client is thinking of applying for so that you can advise them on how this will affect their cashflow and overall benefits. The good news is WhisperClaims is set up to deal with all types of grants and make sure that the correct amounts of expenditure are routed through the SME and RDEC schemes, meaning that you can rest assured that your client’s claims are robust and defensible.
Jen’s take on the recent changes to Employment Allowance, Grants and R&D tax relief
Jen Badger, our Operations Director, is a go-to member of the WhisperClaims team for R&D tax relief knowledge and updates to the scheme. A recent announcement about changes to Employment allowance got us scratching our heads so we sent Jen out to investigate.
So what changes can we expect to see?
Employment allowance was introduced in 2014 as an incentive to employers to hire staff, and consists of £3000 to offset against Class 1 secondary NICs (National Insurance Contributions). Although it was successful, the flat rate nature of the allowance meant that it was unattractive to larger employers. This has led to the Government making changes to target the allowance at smaller employers.
From April 2020, EA will only be available to employers who paid less than £100,000 in employer’s NIC payments in the previous year, and will have to be applied for every year. So, far, so straightforward. However, there is a more significant change for small companies that have received grants, or who plan to claim R&D tax relief – EA is now a ‘de minimis’ state aid.
This small change could have a big impact on small companies. Under state aid rules, a company can only receive €200,000 of ‘de minimis’ aid over a rolling three year period, so any employer that has received ‘de minimis’ aid will have to make sure that claiming EA will not push them over this threshold, and may be prevented from applying for further funding on this basis.
What does this mean for R&D tax relief?
As for how this will affect claims for R&D tax relief, the current answer appears to be ‘who knows?’! We asked HMRC’s R&D tax team, and they told us that they haven’t be advised of any changes, and to continue to claim as usual. Employer’s NICs are an allowable cost in an R&D tax claim, but up until these changes the amount of EA received could not be included.
This seemed fair – the claimant company hadn’t actually spent this money, and it wouldn’t be shown as a revenue cost in the accounts.
However, now that this allowance is a ‘de minimis’ state aid, it will feature in the company accounts, and will affect, for example, the company’s ability to apply for further funding, we’d argue that it should be included in a claim for R&D tax relief as subsidised expenditure.
This would allow an SME to claim for up to an additional £3000 through the RDEC scheme, increasing their claim by £291. That might not seem much, but for many small companies, every little really does help!
Of course, this small increase in benefit is meaningless if it increases the time and effort involved in making a claim. Happily, at WhisperClaims we’re constantly checking for legislative changes that impact how R&D claims are made, and making sure that our system is up to date. This means our users will be able to seamlessly change the way they claim for NICs and employment allowance, enabling them to maximise their client’s claim with the minimum of effort.
4 commercial models for R&D consultancy adopted by accountants & consultants
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.
Festive opening times
We know that some of you will be turning off your laptops and starting the festivities very soon, we want to wish you a merry and peaceful Christmas and a happy New Year.
We’re going to take some time to put our feet up over the holidays, but will still be available to support you on the phone and by email. The only days we won’t be contactable will be the 25th and 26th December and the 1st and 2nd of January. Otherwise, please don’t hesitate to get in touch!
We’ve really enjoyed working with you in 2019, and look forward to a great 2020!
R&D tax relief trends for 2020 – Richard’s predictions!
Somewhat incredibly, as we find ourselves staring hungrily down the mince-pie-studded path towards Christmas, the cheeky green shoots of 2020 are clearly visible through the faded, well-trodden lawn of 2019. So what’s happened over the year in terms of HMRC’s R&D tax relief scheme – and what’s coming next?!
Well, it’s certainly no news that the R&D scheme overall continues to expand like a festive waistline. HMRC’s stats, released in October, showed that the projected cost of support for the 17/18 year is approaching £5bn, largely fuelled by growth in new SME applicants and the huge R&D budgets of Large Companies.
What is more newsworthy is how you, our WhisperClaims customers, are having a positive effect on that fast-growing SME market. This year, we’ve watched as a broad variety of accountancy firms and consulting companies have sat through software demos, launched trials, and thought deeply about how to integrate R&D technology into their business processes – all with the aim of being able to profitably cater to that ever-growing demand from SMEs.
Looking across the cohort of our 2019 customers, the firms (and consulting companies) that have achieved the best results are those that have:
1. A ‘digital R&D champion’
This person is typically enthusiastic about technology and motivated to see it adopted within their organisation. They quickly become an expert user of the software, often running classes and workshops to motivate and educate their colleagues. In some cases this is a partner or business owner, in others it’s a manager who’s seen the benefits of using our system and is evangelising it across the firm.
2. Invested in business process design
Software doesn’t work in a vacuum, and depends on the aims, attitudes and skills of the people using it. The most successful firms have invested time in designing business processes around the software, giving staff clarity on how R&D work should be streamed between different delivery routes. For them, the software isn’t necessarily a magic ‘one size fits all’ solution, but part of a blended R&D service portfolio that spans pure-software to pure-consultancy.
3. Trained & educated their Client Managers to spot R&D
The most proactive firms have trained up their Client Managers to recognise R&D at a high level, even developing scoring systems that allow prospects to be objectively rated before being entered onto the system or passed to a centralised specialist within the firm.
4. Growth targets
Finally, we’ve seen several firms set ambitious ‘digital’ targets (i.e. claims prepared through software) for R&D, both for existing clients and new business. Growth targets, coupled with internal competition between teams, can be highly effective in raising activity and motivation.
In general, the customers who’ve seen the biggest growth in their R&D service, and their profitability, are those who have utilised our service to deliver a highly differentiated and cost effective offering to those smaller SME’s that are dominating HMRC’s stats.
What R&D trends do we expect to see in 2020?
Looking ahead to 2020, what trends do we expect to see? Some are obvious (the scheme will continue to grow, of course), and also, we’d expect to see more accountants take R&D work back in-house, reducing their reliance upon external R&D consultants and earning more in the process. This growing trend of empowerment will heighten the already fierce competition between the specialists, resulting in ever more expensive PPC (Google advertising) costs for common online searches, incentivizing them to invest in other, more content-focused forms of marketing that will inevitably attract even more SMEs to the scheme. The SMEs, meanwhile, will gradually begin to realize that they have more options than simply shopping around for the lowest contingent rate, and we’d expect to see WhisperClaims accountants and consultants increasingly offering R&D as a fixed-price service to take advantage of this.
In short, it’s going to be quite a bustling marketplace in 2020 – even before the as-yet-unknown political impacts of the election are felt.
As for the team at WhisperClaims, there will be exciting changes afoot here too! We have a raft of new features to launch and will be investing heavily in the system’s ‘User Experience’ to make the software as intuitive, useful and convenient to use as we possibly can. We’ll also be staffing up, taking on new developers and boosting the remainder of the team as we continue to scale up. We’ll be launching and delivering a raft of new top-up consultancy services, designed to help our customers plug any gaps they may have in their teams by giving them access to very specialized services that build upon the capabilities of the software itself.
Before WhisperClaims, Richard was a Founder-Director of a large, Edinburgh-based R&D tax credit consultancy. With 9 years’ R&D experience and a Software Engineering degree, Richard works closely with our developers to ensure that the products we build are a perfect fit for our customers.
5 ways to optimise your R&D tax claims process
Tips to keep your R&D tax claims on track
We’ve all been there. You’re snowed under with work, whether that’s dealing with company year ends and or the looming horror of personal tax deadlines, when you realise that there’s a whole pile of R&D tax claims that you should be dealing with. Your heart sinks. You think about how hard it is to get the information out of the client, how time consuming writing reports is, and how it really is time to make sure everyone in the office has been trained in how to prepare R&D claims. You throw your hands up and declare that there must be a better way!
You are, of course, right. There are always ways to improve and optimise your process, and, being the helpful people that they are, Jen and Richard (our WhisperClaims R&D tax relief gurus) have pulled together some tips on how you might get started!
1. Avoid unnecessary duplication
We know that getting information out of your clients can be difficult and frustrating. To avoid unnecessary repetition and to and fro, we recommend developing a structured set of questions to ask you clients about both the projects and costs. Making sure you work through the same questions each time makes sure that nothing is missed and there’s no need to keep going back to the client for more information.
2. Use cloud based technology to gather client data in advance
There many ways to make gathering client data more straight forward. During the claim period, it can be helpful to encourage your client to gather and submit project information as they go along. Having shared access to online file-storage, like Dropbox, can make this easy, straightforward and, most importantly, secure.
3. Build your team knowledge
The more people in your office that can work on R&D claims, the more the burden can be shared! We recommend making sure that you offer robust training in the CIRD guidance and the mechanics of putting together a claim to anyone with a client-facing role.
4. Collaborate with your client
Even once you’ve been able to gather the information from your client, you still need their input in reviewing and approving the claim. Making sure that the client can access the information as you pull it together can be a massive help with this, as the client is already in the loop and can give immediate sign-off once the claim is ready.
5. Reduce the time it takes to put a claim through
Even with a well-trained team and a slick information gathering process, you still have to invest the time in writing a robust technical narrative to support the claim. No matter what, this isn’t a trivial task, and is a great candidate for automation.
WhisperClaims is designed to take the pain out of not only gathering information, but automates report production, meaning that a report can be generated within an hour. It’s also a great tool for educating your team in the intricacies of R&D tax claims, and can allow you to work with your client in real-time, overcoming the toing-and-froing that plagues anyone preparing a claim.
Take the burden out of R&D tax claims preparation. Our award-winning R&D software makes it easy to prepare a claim, works directly from your data, and creates reports that have been specifically designed to be clear, concise, fit for purpose and as free from red flags and elephant traps.
7 ways to successfully embed R&D software into your firm
So, your company has taken the plunge and signed up to trial WhisperClaims to prepare your R&D tax claims, and you’re raring to go!
Your next step is to get the rest of your firm onboard. Well, while we won’t pretend to be experts on change management, we’ve pulled together this quick guide to help make your job easier.
1. Mind the gap
How does your company currently handle the preparation of R&D claims? Is there a defined process? Do you use a third party provider?
The first step to successful adoption of WhisperClaims is to work out how and where it can add value. Spend time really pulling apart how things are currently done, and look for gaps, bottlenecks and inefficiencies. Once you’ve identified these, you can look at how WhisperClaims could help. If, for example, you’ve been turning down opportunities because the claims are too small to be economically viable, think about how WhisperClaims could be used to remove costs from the process. On the other hand, if you currently outsource everything, think about how and when this can be brought back in house.
2. Find your champion
Ok, you’ve worked out how WhisperClaims can actually help your team. Now it’s time to find yourself a hero! It might have to be you, or you might have to persuade someone from the team to join you, but having a champion could be key to the whole endeavour. They’ll need to have good rapport with the team, be excited about WhisperClaims, and, for maximum success, be generally skeptical about change. If you can persuade the most cynical member of your team to be your champion, you’re half-way there!
3. Education, education, education
Right, it’s time to start training! Make sure you pitch the training at the right level – experienced teams won’t need a primer on the R&D scheme, for example, whereas if the team have never directly done an R&D claim, then diving straight into the software might leave them confused and more resistant than ever.
Make sure that you, and your champion, are clear on what pace your team will need in order to build their confidence. Some members of your team may find change overwhelming, so this will be your chance to show that you understand their needs and to get people on board.
4. All aboard!
Hopefully the training will have gone a long way towards getting the team’s buy-in for WhisperClaims, but you’ll probably still want to continue to work on this. Take the time to sense-check your plans with the team, and ask how they think WhisperClaims could be best used. Don’t let them override your plans, but do be prepared to make adjustments to include the team’s input and ideas.
5. Testing, testing
Ok, your plan has been optimised and the team are onboard – it’s time to get going! At this point, it’s a good idea to identify a particular subset of claimants to trial the software with. This might be new claimants only, or just smaller claims, but the key thing is to make sure that enough claims are put through WhisperClaims to give you enough data to analyse the effects of using the software.
6. Results and rewards
Once the trial is complete, it’s time to look at the results. How much time or money was saved? Were your clients satisfied with the process and output? How did the team feel about using it? Make sure to celebrate the success of the trial, and reward the team members that engaged with WhisperClaims. Show a league table, publish stats on profitability, give out chocolate – whatever it takes to get the final buy-in from your team!
So, you’ve convinced the team, tested the tool and refined the process. All you need to do now is roll it out far and wide. Work with your team to identify potential claimants, market R&D tax relief services to your client base and start putting as many claims as possible through the system!
Have you worked out if your clients are eligible for tax benefit yet?
How Northern Accountants expanded their R&D consultancy services using WhisperClaims
It’s always nice to catch up with WhisperClaims users. This month we met with Northern Accountants to talk about their recent expansion into R&D tax relief consultancy using WhisperClaims technology and how they used this to identify over £250,000 of tax benefit for their clients within 3 months.
Tell us a little bit about Northern Accountants.
We’re a general accountancy practice. We do all the sorts of stuff you would expect like accounts, tax, bookkeeping on a sort of basic level. We don’t have a tax team or a tax partner, so our tax knowledge is sufficient but not advanced. Fortunately, we don’t have any complicated clients so there’s no need to be more advanced.
How did you manage R&D tax relief opportunities for your clients before using WhisperClaims?
We outsourced claims to a R&D specialist firm. If any of our clients mentioned R&D it was a case of: “Oh, right. Well, we’ll pass it their way and they can deal with it.”
What we ended up finding was that you get dragged into the conversations anyway. Yes, there’s a pay-away, and, yes, you get a cut in, but there’s still a lot of work to do. We seemed to be doing the bulk of the work, managing the client and managing the partner. So when WhisperClaims came along, it gave us a template and a structure to allow us to manage the process ourselves.
It takes an hour on average for a claim to be processed using WhisperClaims technology. Are you finding that?
Yeah, about the same. The first one was a bit longer because we were learning how to use the software – we spent an hour and a half with the client inputting information into the system followed by some set up time to synchronise the data with our accounting system, nothing major.
When the claim came through the client was over the moon – he received £15,000.
We are currently putting claims through for 9 clients and the tax benefit comes in at over £250,000, which is a substantial amount for our clients.
What inspired you to take it in-house?
I’m part of a Mastermind group with other accountants from different firms. One thing we do is share wins that we’ve had and someone was talking about the successes he’d had with WhisperClaims and R&D.
We contacted WhisperClaims and set up a demonstration. They showed me around the system about a year ago. We said we’d start in January once some claims had backed up … and we did!
We liked the simplicity of it. It plugged a specialist tax knowledge gap that we didn’t have within the team.
What makes it quicker for you?
Moving consultancy in-house and using WhisperClaims technology meant that we were able to claim tax benefit for our clients within 28 days from submission to HMRC. It was closer to 45 days when we were outsourcing the work to R&D tax specialists.
What always held the R&D specialists up was the extraction of the financial information. The client wouldn’t know what to do so they’d get us involved. The back and forth was time consuming, so it’s much quicker just to do the work ourselves.
How has it benefitted your clients?
R&D wasn’t on our radar as a primary sort of consideration. That meant that R&D didn’t get talked about with our clients enough.
We’ve now got 15 clients who we are doing R&D with. We have an equipment company that has built a massive CRM; a software development company; a property agent that’s built their own software platform; a food manufacturer; an IT company; a tripe reseller and so on. That’s 15 sets of clients who hadn’t been claiming R&D and potentially could have been.
What do your clients think of it?
You could argue that before we were doing R&D, we were letting our clients down to a degree. We’re now able to talk to them about claiming and can put that opportunity in front of people.
Our clients give us lot of appreciation for this and they tell their friends about us: “My accountant got me £15k back from an R&D claim”. All of a sudden, someone’s mate wants to get involved. Somebody rang us the other day and asked us if we’d do an R&D claim for his mate because his current accountant wouldn’t do it.
What do you plan to do to grow your client pipeline?
I think we can build quite a good referral network off our existing client base and, potentially, smaller accountants. With smaller firms, technically, we could go and say: “Look, we’ll partner up with you. We’re no threat to your company. We’ll do your R&D if you’ve got any clients who want this” and they become introducers to us.
I also want to do more to educate our client managers on how to find new business. We met with a food manufacturer yesterday who are trying to do some really innovative stuff with infused sausage rolls. It’s funny but we need to find those types of projects.
You mentioned earlier you’ve got 9 clients who are currently eligible for tax benefit, what’s that worth to them?
It’s crazy, I’d say over a quarter of a million in total. If not more.
If we weren’t offering R&D consultancy that money wouldn’t have been recovered. It would have been lost.
What impact has WhisperClaims had on your firm?
It has created a bit of a buzz about the office. When we landed our first claim – I think it was a £22,000 claim – there was quite a big buzz about it. As daft and boring as that sounds, the team were quite buoyed by that. Lots more claims are being made by other members of the team outside of me. They’re now starting to think: “We can do a decent thing here. We can help with that.”
Before we started using WhisperClaims and doing consultancy in-house, our team knew about R&D because they’re all accountants. They understood it and the concept of it, but it’s one of those topics that you cover and then never really touch on again. Whereas, I think now, our ability to service clients is much better.
Are they impacted by the fact that they’re helping organisations?
100%. I mean, we’re very fortunate in our team that they do care about the clients they’re working with. When we told Sean, our client manager, that we were dropping £15k into his client’s bank account, he was over the moon for his client. It’s one of those nice feelings rather than just: “There’s your tax bill of £15k“.
How did you find embedding it into the firm?
We’re changing the structure of our organisation because, historically, our client managers purely just did compliance. Now they’re having R&D conversations with people so our team will have to familiarise themselves with the software. That means there’s an upskill area that we’ll need to work on. The guys at WhisperClaims are helping us with some of that through educational tutorials and written guidelines.
We’re also really committed to technology. Our team have got trust in our view on that. If we say it’s good, it’s going to be good. We’ve demonstrated that with Xeros, Receipt Banks, Chasers … all of that. We’ve demonstrated how technology can help them in their day-to-day job.
If you were going to recommend Whisperclaims to someone else, what would you say?
It gives us, as the accountants, control and it rewards us appropriately for the work that we do. So by having complete control over a claim, and being rewarded appropriately for it, it gets the due care and attention that it should. It also gives the firm a focus to deliver the claim because the return is big, especially with the WhisperClaims subscription and reporting fee being so reasonable.
It brings a cash injection into your business and gives you so many opportunities to do other things that you might not have been able to do before. From my point view, most opportunities are missed because people don’t have cash reserves. Growth needs investment. So this helps put cash into the accountancy practice to help us grow in other areas.
Technology makes you more efficient, saves you more time, and makes you more money.
Have you worked out if your clients are eligible for tax benefit yet?
Last month we hit a really important milestone here at WhisperClaims … it was our one year anniversary! Yay! Now, we’re a modest team but one year is kinda special and we decided a small intimate celebration with blue and white balloons wouldn’t quite hit the mark.
So a vote was counted, it was unanimous, let’s go full celebrity and take it to the media like the divas we really are! A few days later our news spread to the press and we basked in our moment of fame!
While all of this helped to massage our egos a little, a sudden realisation dawned on us … we hadn’t actually told anyone about our story and who we are! (Cue a blog post about the light bulb moment when WhisperClaims came to be!)
So let us introduce our team…
The ones who switched the light bulb on
Here’s Mike Dean, Richard Edwards, Jen Badger and Rick Henry, our four directors.
Richard, Jen and Mike met when working at a successful Edinburgh-based R&D tax consultancy, founded by Richard in 2008. During Mike’s time as interim Sales Director, he noticed key trends in the R&D tax market, most notably the high number of claimants that were being turned away because their claims were too small to be economically processed by consultants. All three founders felt that automating the process of preparing R&D tax claims would be hugely beneficial to the industry, enabling smaller companies to access support and advisors to expand their offering.
While Richard and Jen took time out to polish up their technical skills and gain experience of software development and Agile management, Mike formed Whisperclaims and began gathering feedback on the idea of an automated, cloud-based system for the preparation of R&D tax claims.
Meanwhile, through his training at Codeclan, Richard met Rick Henry, our future Technical Director, and persuaded him to work with us to build the system.
Having gained all of the necessary skills and found a great developer, WhisperClaims was up and running! The prototype system was ready for testing within three months, and a few friendly accountants and consultants were recruited to help us test and refine the system. After only a few weeks of testing, the first claims were prepared and invoiced, and, more importantly, submitted to HMRC.
Having validated the concept and process, we set about building a front end and dashboards to create a great user experience. WhisperClaims officially launched in September 2018, and immediately gained traction. Rick Henry became Technical Director in October, and we were awarded ‘Best Use of Innovation’ at the UK Business Tech Awards in November 2018, which was amazing recognition of the hard work we’d put in up to that point.
The ones who made it shine brighter
Through 2019, WhisperClaims has gone from strength to strength. Highlights have included expanding our team, with our first additional developer, Upul, joining in January…
Suz, our Sales Coordinator, in April…
Then Gillian our Marketing Manager in June…
We won ‘Emerging Fintech of the Year’ at the Scottish Accounting and Financial Technology Awards in May, and were shortlisted for two awards at the Scottish Fintech Awards 2019.
One year on, we have over forty subscribed customers – from one-man band accountants to top 30 accountancy firms and leading R&D tax consultancies. That number has continued to grow every month since our anniversary.
So Reservoir Dogs or The Beatles?
While strutting our stuff down the streets of Edinburgh last week during a press photoshoot, we suddenly found ourselves forming a line-up that (with eyes a little squinted) might resemble something from the front cover of a well-known Beatles album or gangster movie. Though we may not be quite in the same league as the Beatles … yet (come on, there’s nothing wrong with ambition!) … our little moment of fame give us a good chuckle and offered us some well deserved time-out to reflect on what has been an amazing year. Here’s to 2020 and what that might bring.
Have you had your WhisperClaims demo yet?
Our fully automated, scalable and white-labelled software is capable of producing all the documentation needed to support an R&D claim within an hour. It is designed for business advisors of all kinds, including Accountants and R&D Tax Consultants.
When you start to build a business, it’s inevitable that you’ll have a number of goals in mind. For us, it was a mixture of things, but a core driver was to create something that could push boundaries and had the ability to shake-up and simplify the UK R&D tax relief consultancy market for the better.
After years of working in R&D tax consultancy, the team and I had observed a vast number of companies being turned away for R&D tax relief consultancy because accountancy firms were unable to process their claims. We made it our mission to resolve this problem.
Navigating the R&D tax scheme
R&D tax relief was introduced for SMEs in 2000 and extended to large companies from 2002. The scheme is designed to encourage greater R&D spending, leading in turn to greater investment in innovation and is one of the main tenets of UK government business support. The more innovation, the more likely we are to remain competitive as a nation, or so the mantra says, and in the current climate UK businesses need all the help they can get.
Our observation was that many SME’s, especially the ones with smaller potential R&D claims, found it hard to get support to access the scheme. Many didn’t know that they are eligible, and even if they did, the 500 pages of HMRC guidance on the scheme was difficult to navigate!
Consequently, only around 43,000 claims were made under the R&D tax scheme in 2015-16, a tiny proportion of the UK business population and certainly only a small percentage of SME’s with eligible activities.
The landscape now
According to HMRC’s statistics, UK companies spent £31.3 billion on R&D during the 2017/18 financial year. This resulted in support from the Treasury of £4.3 billion, creating an estimated £1 billion in fees for accountants and specialist R&D tax relief consultants.
So, with so much to gain why don’t more accountants support their clients to make claims?
In the last two years, we’ve had the pleasure of personally meeting over 300 accountancy firms and have uncovered a few key issues with their processes:
Lack of knowledge of the scheme. It’s seen as a niche tax area, many firms don’t have the knowledge and are fearful of providing poor advice.
Lack of knowledge of their clients business or technology. Many accountants will say that they don’t understand technology so are unable to assess their clients potential eligibility for the scheme from that perspective.
The return on investment. The market for R&D tax support has grown substantially over the last 10 years or so and is dominated by specialist providers who offer “no win, no fee” contingent fees. Many of them are hugely successful firms that do great for their larger clients, but for whom it isn’t always economically viable to work with smaller claims.
Time consuming. Preparing claims for R&D tax relief without technology can be a time-consuming and difficult process, resulting in a buoyant market for consultants who help companies with their claims. Claims can take weeks or months to prepare through traditional methods, which is expensive for both the consultant and the client.
So what we have is a sector that, certainly from the perspective of the smaller SME, has a couple of structural problems. At one end, we have an army of high quality accountancy professionals who don’t have the knowledge to be able to provide support to their clients in this niche area, and at the other end we have specialist providers whose business model means that they are unable to support smaller claims.
Finding a solution
Given the importance of the scheme and the fact that it is there to provide support to innovation and business growth in the UK economy, it seemed to us that there ought to be a role for technology to play in solving this problem, and thus opening up the scheme to a broader base of businesses.
And so our idea was born – a cloud based platform, easy to use, with all the help and guidance you could need to build your own R&D tax claims.
The system is white-labelled so any accountant or consultant can use it with their clients without the fear of affecting their brand value.
It’s also capable of producing all the documentation needed to support an R&D claim within an hour, which enables accountants nationwide to service more clients and scale up operations without recruiting more staff.
Reports at the touch of a button
The most innovative aspect of the solution is our technology’s ability to create comprehensive, detailed reports suitable for submission to HMRC at the touch of a button.
To prepare a claim, users of our technology are led through a responsive question set, probing all of the key areas of a claim to ensure that the end result is robust and defensible. Users can also invite their clients to sign-in and answer questions.
Unlike other systems that purport to generate reports, our system is capable of doing so without any free text entry – instead using a variety of sliders, multiple choice questions and numerical inputs to collect information about the client and their claim.
From a technical perspective, converting data into naturally written R&D reports was challenging to achieve and no other company has managed to achieve anything close to this level of automation. The time savings are considerable: a process that can weeks or months has now been reduced to an hour.
It’s going well
Since development began in January 2018, our technology has won ‘Best Use of Innovation’ at the UK Business Technology Awards 2018 and the company has won ‘Emerging FinTech Company of the Year’ at the Business Insider Scottish Accountancy & Fintech Awards 2019.
In developing WhisperClaims, we have shown that it is possible to digitise a complex form of consultancy that was previously resistant to automation.
Where do we go from here? Scaling, testing, refining & listening to what the market needs. We’ve got plans to recruit two more members of staff over the next 12 months (read more about our team), to grow our UK customer base and to create new features and services to meet demand. It’s going to be an exciting year ahead and a huge thank you needs to be said to our customers and to our massively talented team here at WhisperClaims for helping us to get to where we are.
Mike is Director of Sales & Marketing at WhisperClaims. He spent the 14 years prior to WhisperClaims as an Interim Director, coach and trainer in SME businesses across multiple sectors. Mike leads on engaging the marketplace and making sure that accountants and consultants are maximising the value of our technology in their businesses. Get in touch to chat to Mike in person.
Less is more – getting it right first time
In our last blog post (‘Avoiding the elephant traps when writing R&D reports‘), we talked about how to avoid some of the common pitfalls in applying for R&D tax relief. This time we wanted to focus on the positives – the things you can include that’ll help HMRC to understand what the claim is for and give them reassurance that it’s been prepared to a high standard by someone who really understands the scheme.
The first really helpful thing you can do is decide on the structure of your report. Even if you don’t provide reams of detail, it’s useful to show HMRC that you’ve examined a wide range of factors that can affect the claim. The ones we’d particularly recommend are:
Be up front about any grants that the company has received. Be sure to mention the type of the award (i.e. whether it is Notified State Aid, de minimis funding, or anything else). The reason to be clear is because grants have such a significant impact on the claim, so HMRC will be keen to see that they’ve been treated correctly.
Remember, any project that’s received State Aid will be bumped into the RDEC scheme for Large Companies, meaning that subcontractor costs for Limited companies must be excluded. If the grant was de minimis State Aid (or not State Aid at all!), then the grant-funded part of the project can be claimed through RDEC and the remainder routed through the SME scheme as usual.
Boundaries of R&D
In HMRC’s playbook, R&D doesn’t actually start until you’ve set out to make something ‘better’, encountered at least one significant technical challenge, and, crucially, tried to use all the standard or existing techniques that are usually applied in that situation. If all of those don’t work, then the R&D clock starts ticking while you try to develop a new solution that does work. Getting this boundary condition right shows that you’re an R&D ninja. Getting it wrong can be an instant red flag and land you with a time-consuming enquiry.
Level of detail
Some advisors seem to think that the longer the R&D report, the stronger the claim. Not true. While it’s always important to provide a level of detail appropriate to the size of the claim, it’s usually better to provide a small amount of really concise and relevant information than a War & Peace effort where much of the information is extraneous. Like you, HMRC are pushed for time and you can help make their lives easier (and happier!) by providing only what they need to make an informed decision on your claim. Be honest about who you’re writing for – HMRC, or your client (to justify your fees..?).
Area of advance
When it comes to the section on the technical advance, it often helps to include the area of science or technology in which the advance is being claimed. Why? Two reasons – firstly, because it helps HMRC get comfortable that the advance isn’t a commercial one (for example, using existing technologies to produce something that is commercially new rather than technologically new). Secondly, being clear about the area of advance makes it easy for them to check that you or your client have Competent Professionals in that particular area.
Speaking of which, it’s good practice to consider whether the people leading the R&D projects are credible ‘Competent Professionals’. This is usually the case if they have industry experience and qualifications in that particular field. If they don’t (as is the case in many IT projects, in which non-IT experts are asked to draw up a specification for a new system but aren’t directly involved in the technical details of its implementation) then perhaps draw breath to consider whether the company should even be claiming for that work at all.
As you can probably get from the above, there’s lots to consider when making a claim for R&D tax relief – and this is only scratching the surface. The good news is that WhisperClaims provides advisors (typically accountants and business consultants) with a framework for systematically and methodically working through all of these points – and generating HMRC-compliant reports at the touch of a button. For those who like to tinker, our reports are also easy to edit and customise, allowing you to focus your efforts on the fancy icing rather than on baking the cake in the first place.
With a growing number of accountancy firms starting to use technology to make their R&D processes more efficient, the future looks like one where advisors and their clients work together closely, supported by technology, to produce stronger results with less effort and cost. And that’s a future that we’re proud to be part of.
Have you had your WhisperClaims demo yet?
Our fully automated, scalable and white-labelled software is capable of producing all the documentation needed to support an R&D claim within an hour. It is designed for business advisors of all kinds, including Accountants and R&D Tax Consultants.
It’s statistics time again! That one hallowed day of the year when I get to take off my Operations Director hat and let out my inner scientist. The annual Research and Development Tax Credit Statistics have been released, and, as usual, they make very interesting reading.
Now, from this point, I could just copy and paste the blog I wrote last year, because the trends in the data are remarkably consistent. The 20% year-on-year increase in the number of claims continues, as does the rise in first time claimants, which is great news for us and the R&D tax relief industry as a whole. However, I’m more interested in digging further into the stats, and looking at how they can be used and manipulated.
One statistic that all R&D tax relief specialists will tell you is that the average tax benefit from an R&D claim for FY2017-18 is £54,000. They’re not lying. If you take the overall total paid out in R&D claims and divide it by the number of claims, you get that number. Great, you might think, I’ve got lots of clients who could claim R&D tax relief, and would be really happy with a payout of £54,000.
However, looking a bit harder, and you’ll see that a very different story emerges. In FY2017-18, 76% of SME scheme claimants received less than £50k in benefit. Looking specifically at this group, the average tax benefit is only £16k, a serious drop from the quoted £54k. That’s not to say that most claimants wouldn’t be happy with £16k in benefit, but they might if they were expecting three times that!
The other statistic you’ll see time and time again, often alongside the £54k figure, is a company claiming a ‘100% success rate’ with R&D claims. Sounds great, doesn’t it? But it all depends on your definition of success, and, just like the R&D stats, can easily be manipulated to the point of being meaningless.
So, why would we point this out? Well, partly because we love it when statistics and marketing are aligned and being used to tell compelling stories, and partly because we’re suckers for upfront honesty. While statistics aren’t always what they seem, we’ve expended a huge amount of time and energy in developing a system that is what it appears to be – a straightforward way to gather information from your clients and the means to prepare robust and editable R&D reports at the touch of a button. While your success rate may not be 100% (clients sometimes go bust or miss the deadline), at least you can be sure that you’re using a system that is specifically and unashamedly designed for one purpose – helping you to take effort and cost out of your R&D process while enhancing your clients’ experience of working with you.
WhisperClaims nominated for the Scotland Tech 50
Last week we were surprised and very flattered to find out that WhisperClaims has been included in the long-list for Business Cloud’s Scotland Tech 50. The aim of this award is to recognise the 50 most exciting, disruptive and impactful Tech companies in Scotland, so to even be nominated feels great! It’s extra special as it came out of the blue – no entry forms or nominations from us!
It’s especially mind-blowing to be included in a list alongside some of the biggest names in Scottish Tech – SkyScanner and Freeagent, to name just a couple. Having only been in business for little over a year, it’s incredible to be spoken of in the same breath as so many really successful companies.
Inclusion in the final list of 50 depends on both the votes of the judging panel and the result of a public vote, so if you feel that we fit the description of an exciting and disruptive company, we’d love your support!
Simply go to the Scotland Tech 50 website, scroll all the way to the bottom and click on WhisperClaims. Voting closes on 9th October at 11pm, so you’ll have to move fast. Fingers crossed!
We’ve been shortlisted for the Scottish Financial Technology Awards!
Our Jen Badger gives us her heart-felt account of what it means to be shortlisted for the Scottish Financial Technology Awards a year on from the launch of WhisperClaims.
Back in August, we were thrilled to hear that, on the back of our winning ‘Emerging Fintech Company of the Year’ at the Scottish Accountancy and Financial Technology awards, we’d been nominated for two more! We’re up for the ‘Product Innovation’ and ‘Rising Star’ awards at the Scottish Financial Technology Awards.
As a software start-up, any and all recognition is special. You work hard designing, developing and building your product, making something you’re really proud of. Then you start trying to sell it, and suddenly expose your baby to the reality of the world. Fear sets in as you consider how people might respond to your product. But then soon enough, after all of that hard slog, you impress someone. In fact, you impress them so much, they actually nominate you for an award. It’s an amazing feeling.
This latest pair of nominations is particularly special. We set out to produce a truly innovative and disruptive product, so to be recognised in the product innovation category is great validation of our product and business model. WhisperClaims is the only fully automated R&D relief claim platform in the market, and it’s great to have the team’s innovative development work acknowledged. It’s also incredibly flattering, a year since officially launching WhisperClaims, to be listed alongside such well-established names as Autorek, Hymans Robertson and even RBS!
As for the rising star category, well, that’s exactly how we feel! Over the past three years, we’ve risen from three of us sitting around a dining room table, mapping out our ideas on endless sheets of paper, to a fully-fledged company. We’ve got paying customers, a great team and a strong vision for the future, with no plans to slow down!
Having said all of that, if you were to ask me what I’m most proud of over the past few years, it wouldn’t just be the awards and nominations. I’m proud of what we’ve built – a great product, a happy customer base, and, most importantly, a great team. With all of that, no matter how it goes on the night, I know we’ll continue to feel like winners.
Avoiding the elephant traps when writing R&D reports
When making claims for R&D tax relief, most companies (or their advisors) will prepare a technical narrative to accompany the numbers. Ideally, this should give HMRC a clear idea of what the company is claiming for, and why it meets the criteria for relief.
Often, however, the company (or said advisor!) can fall into one of many elephant traps that are liberally sprinkled around the R&D tax credit landscape. We know that the last thing you need is to be looking up at the sky from the bottom of a dark pit (our metaphorical description of what it feels like to be facing an HMRC R&D enquiry), so have compiled this handy list of commonly made mistakes – and suggested how to solve them. Because we’re nice. And like elephants.
Trap Number 1 – Mixing up “research” with “research”.
Um, what now? Ok, I can see how this could be confusing. What we mean by this is that some companies confuse what is research for them with research as defined by HMRC’s guidelines (check out ‘HMRC CIRD81900’ for a fascinating ½ hour read).
Examples of this are companies writing things like “we’ve never done this before” or “it was difficult and required research because we didn’t know how to do this”.
The problem here is that the first question HMRC will ask is whether the company was operating outside its area of specialism. Just because they didn’t have the skills or experience to tackle the task, doesn’t mean that it is necessarily a challenge for the industry. An example of this could be an engineering company trying to claim for the development of a new IT system – they might be great at making shock absorbers, but lousy at software development.
So, if you find yourself writing ‘we didn’t know if we could do this’, be sure to explain why it was difficult and make it clear that you were operating within your sector of specialism (or if not, had at least engaged a competent professional able to recognise what is and isn’t R&D in the relevant field).
Trap Number 2 – Using the word ‘bespoke’
But wait, I hear you cry – ‘bespoke’ means unique, and unique means new, and new means eligible for R&D tax credits! Am I right?
Well, in some cases yes, but in many cases no.
The word ‘bespoke’ does indeed imply that the solution you developed is a one-off, but unfortunately that doesn’t necessarily make it eligible for R&D tax credits. Take the example of buying a bespoke suit – it’s beautiful, it’s fitted to you and only you, no other suit is exactly the same anywhere in the world.
The problem is that although the suit itself is a one-off, the process of making bespoke suits is well understood and carries no technical risk (in other words, there’s no ‘technical uncertainty’ associated with its production).
While this is a trivial example, the same principle can be applied to software projects. It’s common for companies commissioning a new IT system to think that because they’ve paid for the development of a system that’s exactly designed and configured to their specifications, that they can claim R&D tax credits for it. The issue here is that most often, the specification they set can be met by the IT company using existing techniques, methods and processes – so no R&D is involved at all!
Bottom line is, if you’re going to use the word bespoke, be prepared to explain which parts of the project or product advanced scientific knowledge. Being unique isn’t enough on its own!
Trap Number 3 – Get your boundaries right
We’ve seen some reports that are pretty expansive (or optimistic) about when R&D starts and stops. For example:
“The R&D began when the company first spoke to the client about the problem, and ended when the solution was implemented.”
Again, writing something like this is a red flag to HMRC’s Inspectors, who know that the early part of the project is likely to involve talking in more general terms about the project – its success criteria, costs and timings etc.
In contrast, the boundaries for R&D (for tax relief purposes) are defined as ‘when work to resolve the scientific or technological uncertainty starts’ and ends with ‘when that uncertainty is resolved or work to resolve it ceases’. That’s a jargon-y way of saying that you must have met a significant new technical challenge in the project – and those challenges typically don’t pop up straight away (unless you’ve been specifically engaged to solve a problem that’s known to be R&D straight off the bat).
In summary, our advice is to be careful to show HMRC that you understand the start / stop conditions of R&D. A good way of doing this is to show in the report what the client did prior to any R&D, making it more obvious that the claimant is being respectful of the limits of the scheme.
The challenges of describing your projects in exactly the right way can be avoided by using WhisperClaims. Our award-winning R&D software makes it easy to prepare a claim, works directly from your data, and creates reports that have been specifically designed to be clear, concise, fit for purpose and as free from red flags and elephant traps as we can possibly make them.
The interaction of grants and R&D tax credits is one of the least well understood parts of HMRC’s R&D Tax Relief scheme, but it doesn’t have to be – it’s actually not that bad once you understand a few basics! In this mini tutorial, we walk you through some of the key tips and rules and show you how these can be applied to your projects (or those of your clients).
The first thing to appreciate is that, from the perspective of R&D tax credits, grants can be split into two types: Notified State Aid, and then everything else (including de minimis State Aid). Notified State Aid is grant funding that has been notified to and approved by the European Commission; in fact, the SME scheme for R&D tax credits is in itself a Notified State Aid! To help prevent Governments over-subsidising their own companies, there is a rule that no project within Europe can be in receipt of more than one form of Notified State Aid. This leads us to Rule 1.
Rule 1 – You can’t use more than one form of Notified State Aid on a project.
This means that if your project has already received State Aid (such as a SMART grant), you can’t apply for R&D tax credits under the SME scheme. Technically this applies for the lifespan of the project, so accepting a State Aid grant in one year will preclude claiming SME R&D credits in all subsequent years. However, the news is not all bad! (See Rule 2.)
Rule 2 – You can claim for State Aid-funded projects through RDEC.
More of a tip than a rule, but anyway – RDEC stands for Research & Development Expenditure Credit, which is the scheme available for Large Companies (those with 500+ staff) conducting R&D in the UK.
If you are an SME with a State Aid-funded R&D project, you can normally claim relief under RDEC – which unlike the SME scheme is not a form of Notified State Aid. It doesn’t matter what percentage of the project has been funded by State Aid – all of its expenditure is affected! Here are a couple of examples.
Example 1: £100k project funded by £40k of State Aid.
Example 2: £100k project funded by £10k of State Aid.
In each example above, the whole project must be routed through RDEC, irrespective of how much State Aid it received. So be warned! As an SME, accepting even small amounts of State Aid can have a big impact on your ability to claim for R&D tax relief.
Ok, that’s the evil form of grant funding out the way. Now let’s look at what happens when we fund R&D projects with grants that are not Notified State Aid. Well hello Rule 3…
Rule 3: Non State Aid grants split your project into SME & RDEC components.
Compared with the fire-breathing dragons of State Aid, other forms of funding are much nicer, fluffier creatures. Instead of forcing your whole project into the RDEC scheme, they affect only the amount they subsidise, with the balance allowed to go through the SME scheme as usual. Let’s look at a couple of examples to get a feel for how this works.
Example 3: £100k project funded by £40k of other grants.
Example 4: £100k project funded by £10k of other grants.
In each of these examples, the part of the project subsidised by the grant is routed through RDEC. The remainder goes through the SME scheme as usual. For most companies, this is the best of both worlds – you get your grant, and you also get to claim for a lot of the SME tax credits; nice!
While there is still a bit of complexity we haven’t covered (for example, not all costs eligible under the SME scheme are permissible under RDEC), we hope that gives you a clearer idea of how grants affect claims for R&D tax credits. State Aid is ‘bad’ – but not as bad as people think, as it doesn’t stop you claiming, it just changes how much benefit you get from your claim. Non State Aid is ‘good’, in that it nourishes your projects while not preventing you from claiming for the majority of your oh-so-tasty SME R&D tax credits.
The great news is that all of the above information is baked into WhisperClaims – a robust, cloud-based system that allows you to prepare claims for your clients quickly and with as much expert knowledge as we could pack in (which was a lot).
Don’t miss out on a lucrative R&D tax relief payout!
“How can I identify clients that are eligible to claim R&D tax relief?”
If we had £1 for every time we’ve been asked this by a client, we’d (pauses to count on fingers) be rich! Seriously, it’s a common question, and one that’s surprisingly difficult to answer with more than an “it depends”.
The Government’s own guidance points out that R&D tax relief is not just for ‘white coat’ scientific research, as you might expect, but also for ‘brown coat’ development work in design and engineering involving overcoming difficult technological problems. However, this just broadens the scope and makes identifying eligible clients harder!
A process of elimination
If you were to ask us which of your clients definitely don’t qualify for R&D tax relief, that’s pretty easy. You can immediately dismiss all of you clients that are not limited companies – goodbye sole traders and LLPs! Once you’ve done that, we’d tell you to ignore any clients that are not going concerns, or already in administration – they’ll not be able to realise any benefit. The last easy filter is any companies that don’t have staff, and only pay the Directors dividends – unless you know that these companies have significant other costs, they won’t have expenditure to make a claim.
Narrow down the industries
After these easy black and white answers, however, everything turns various shades of grey. You could start by focussing on the industries and sectors where the most claims are made – the three sectors covering technical, IT and manufacturing account for 70% of claims, according to HMRC’s statistics. There will be a rich vein of eligibilitywithin this section of your client base, and it’s a great place to start.
Identify the qualifying work
So, you’ve filtered out your definitely ineligible clients, and identified your technical, IT and manufacturing clients – what now? How can you assess the rest of your client base? This is where your in-depth knowledge of your clients, their businesses and their particular problems comes in. No-one is better placed than you to identify the clients who have expanded their product range through innovation and product development; taken on new staff to work on research products; received grants linked to development; employed staff with R&D-related job titles, such as testers, engineers, developers and designers; spent a lot on contractors to help with problem-solving; included costs for subcontractors, development or R&D in their accounts; or seen an increase in wastage and cost-overruns.
Throughout this, you should bear in mind that qualifying work can include creating new processes, products or services, making appreciable improvements to existing ones, and even using science and technology to duplicate existing processes, products and services in a new way.
Simplify your claims process
This assessment might seem daunting, even once you’ve filtered your list down to just those companies that you think are likely to be eligible. This is where WhisperClaimscomes in – with its no obligation, real-time assessment of eligibility, you can enter the details of all of your potential claimants and let the system help you assess which of these to take forward, without incurring any additional costs.
Claimants can get back up to 33%!
So, why go to all this effort? Why make sure that all of your eligible clients are claiming? In short, because by not claiming, they’re missing out on a potentially lucrative payout for not very much work. Claimants can get back up to 33% of their eligible spend on R&D, and we’ve never met a company that wouldn’t welcome some extra income!
Despite the fact that HMRC’s R&D tax credit scheme is now close to 20 years old (how time flies!), there are still quite a few stubborn myths and questions that never quite seem to go away. To help banish them once and for all, we’ve compiled a list of three of the most common – we hope these haven’t got in the way of your claims over the years!
Myth 1: “We can’t claim for projects that failed”
Like many good myths, there’s an element of truth to this. If the project has failed for business, commercial or legal reasons (or, gulp, due to poor leadership or mismanagement) then yes, that’s not good.
If, however, the project failed for technical reasons, then from the perspective of R&D tax credits, this can actually be positive, as it shows that what you were trying to achieve was genuinely challenging, even for experienced people.
So, if projects fail, you don’t necessarily have to push them into a darkened room and forget about them.
Top tip:Instead, keep a note of why that project failed, and if it’s a technical reason, the work might be worth considering as part of your claim when you come to your year end.
Myth 2: “We can’t claim for projects that received grants”
Ooooh, this is a horrible one – and we hear it quite a lot. It’s horrible because people believe it, don’t look at how the scheme works and end up losing out big-time as a result.
Unlike Myth 1, there is no element of truth to this. You can claim for grant-funded projects, but you’ve got to do it correctly and the benefit you receive will vary depending on the size of the grant and whether it’s Notified State Aid.
As a rule of thumb, if a project has received Notified State Aid (no matter how small) then all of that project’s expenditure should be routed through the Research & Development Expenditure Credit scheme (RDEC) – that’s normally used by Large Companies.
Conversely, if you have a £100k project that’s been subsidised by a £30k grant that is not Notified State Aid, then £30k of the project would go through RDEC and £70k will go through the SME scheme.
Top Tip:The moral of the story is: find out what type of grant you received!
Myth 3: “We can’t claim for the work because we were paid to do it”
This is a really interesting one. Again, it’s based on truth, in that if you are contracted by an SME to perform R&D, you can’t claim (instead, the commissioning SME will be claiming R&D tax relief on the payment they made to their subcontractor – you).
However, the first point to make is that if you are commissioned to perform R&D by a Large Company (usually one with 500 or more staff), then you are generally able to claim through RDEC yourself, as the commissioning Large Company cannot claim R&D tax relief on the costs of its Limited Company subcontractors.
The other, more subtle point, is that many contracts between companies and their subcontractors do not explicitly state the need for R&D. In short, the contract is for a defined piece of work and the need for R&D is often not mentioned.
Now, it may be that as a subcontractor delivering such a contract, you can do what’s required by using existing knowledge, processes and techniques. In this case, no R&D is involved and it would be inappropriate to claim R&D tax relief.
On the other hand, you may decide to launch your own project – at your own cost and risk – to develop a new capability that will assist in delivering upon this contract, and similar contracts you might win in the future. In this case, there’s usually an argument to be made for claiming R&D tax relief under the SME scheme.
Top Tip: Check if the contract with your client explicitly states the need for R&D and if you have an argument for making a claim.
Don’t get bamboozled!
The great news is that all of these myths are comprehensively busted in our software platform, WhisperClaims, which was designed from the ground up by people who’ve worked in R&D tax credit consultancy for years. The software helps you evaluate work that might have failed, handles all kinds of grant situations (such as using Notified State Aid and de minimis funding on the same project, for example) and even takes you through the complexities of working as a subcontractor for other entities, whether SMEs or Large Companies.
There’s a lot going on in our system, and we feel the best way to explain it all is to show you. That’s why we’re happy to arrange a free demo and consultation, so that you can decide whether it’s right for you or your clients.
Emerging Fintech Company of the Year 2019 – another win!
Last week we were thrilled to be awarded ‘Emerging Fintech Company of the Year’ at the Scottish Accountancy and Financial Technology Awards. We were up against stiff competition in the form of two of our Codebase neighbours – Float and Mark to Market, and were genuinely surprised when our name was read out!
Although this is not the first award we’ve won, it does feel the pretty special. Funding the business ourselves, taking a risk on developing our R&D tax platform from an idea, to a prototype, to real customers, and now gaining recognition from the Accountancy sector, the very people who use WhisperClaims every day, is just a fantastic feeling.
The judges feedback also gave us a buzz – they were impressed by the WhisperClaims platform and its potential to massively disrupt an existing market, and by our capacity for future growth, both things we’re very excited about too!
How technology is starting to impact the R&D tax market – FreeAgent Webinar 27th March 2019
We had the great pleasure of being hosted by our friends over at FreeAgent back in March, where we delivered a webinar on the impacts of technology on the R&D tax market.
Delivered from the in-house studio at their Edinburgh HQ, the webinar attracted an audience of almost 100 accountancy firms from across the UK. The session covered off some of the key stats that we see in the market, the overall growth of the R&D tax scheme and our observations about the direction of technology in this particular area of tax and accounting.
Of course, we also got to talk about our WhisperClaims platform and some of its key features, including the fact that it’s white-labelled and therefore allows our users to maintain their brand presence with their clients (as opposed to farming work out to expensive consultants!), and our capped pricing which means your service will always be competitive and profitable!
The session wrapped up with some great questions, covering areas including:
Accountant accreditation to complete R&D claims – is it necessary to register with HMRC or anyone else to be able to complete claims? No, this is an unregulated market
How does your system ensure quality service delivery? We have a comprehensive and robust approach to the process of building a claim – user feedback suggests this is much more thorough than the existing, consultant led approach
What’s the likely impact of Brexit on the R&D tax scheme? Blimey, we didn’t expect this one! – but it’s interesting to note, at least anecdotally, that recent M&A activity in the R&D consulting sector has been led by overseas firms buying in to the UK – PR around this suggests that the UK market is attractive to international investors because, post-Brexit, tax incentives will continue to be a necessary part of stimulating the economy
Does the WhisperClaims system integrate with other accounting platforms? Watch this space!
Clarification of our pricing model. Does WhisperClaims address very small claims? Yes, we do! We have a low capped fee on our reports, so no matter how big your claim, our pricing stays low. For very small claims, we charge a % of eligible expenditure so no matter how small the claim, it will always be worth downloading
How much training and scheme awareness is needed to create a claim for a client for the first time? We have a comprehensive on-boarding process. More importantly, post on-boarding, users have access to help within the system, tailored to every question, that offers a short help video, some key pointers and direct links to the relevant HMRC guidance. Additionally, we’re always at the end of the phone to provide help and guidance. So, there’s no need for you to be an “expert” – we’re here to help!
Does the system provide guidance on whether a project is eligible, or is that left up to the user to decide? Absolutely it does! Fundamentally, our system has been designed based on many years of experience as consultants in this market – Richard, one of our Founders, was a founder Director in one of the UK’s largest consultancies – and has been designed precisely to address the needs and expectations of HMRC in justifying eligibility
Our FreeAgent host for the morning, Kevin Lord, did a great job of compering the session and making sure we answered all of the questions – we can’t wait to be back for another FreeAgent webinar!
HMRC’s new portal for submitting R&D claims – here’s what we think
With not much in
the way of public fanfare, HMRC recently launched their beta online platform to
support the submission of SME R&D claims. As we’re in the R&D software
platform business ourselves, you can imagine we had been awaiting this
development with bated breath! So, now that it’s broken cover – what does it
look like and what’s it for?
Well, our first
impressions are that the tool is surprisingly basic and comes with a couple of
fairly substantial limitations. The good things first – it allows SMEs to
present their R&D claim information directly to HMRC. They can enter the
usual costs – employees, connected and unconnected EPWs and subcontractors,
software, consumables and costs for clinical trial volunteers. They can also
enter a technical description of their projects, covering the baseline state of
technology, the advance attempted, and the technical challenges faced on the
The big catch is
that the portal assumes that the SME knows what they want to claim for – and
that’s a big assumption. If you’ve ever been asked to assist with a client’s
claim, you know that they usually need help in assessing their SME status, the
boundaries of their R&D, and whether their work would even be considered
eligible by HMRC. In the new portal, however, there’s not much in-built support
to help claimants or agents who are unfamiliar with the scheme to answer these
questions. It also doesn’t help companies to calculate whether they’re an SME,
or support SMEs who have received grants, or undertaken work as a subcontractor
to a Large Company. This means that complex claims with expenditure eligible
under the SME and RDEC schemes are
essentially not supported at all. That affects a pretty chunky number of
companies, particularly within the life sciences and manufacturing sectors.
Maybe these areas
will be addressed in the future. In the meantime, we’re confident that WhisperClaims,
our award-winning cloud based platform for R&D tax submissions, will continue
to prove more useful (and useable) to our accountancy clients, helping them
generate significant additional revenues by delivering truly comprehensive R&D
support to their clients.
“Tech Start-ups don’t need MD’s”
Great article about our management structure and, well, overall approach to managing our business, published in todays BusinessCloud and written by Tech Journalist and Editor, Mo Aldolou:
When we were first shortlisted for the “Best Use of Innovation” at the UK Business Tech Awards, we were over the moon at being recognised as part of a cohort of eight outstanding shortlisted businesses. The shortlist included a household name with a high profile and an extremely catchy TV advert, and a couple of businesses with significant VC backing.
Imagine how pleased we were on Tuesday night when we were announced as Winners!
A few days later and we’re still reeling from the whole experience. Not because we are surprised to have won, because of course we think we’re awesome, but simply because it’s such a great feeling that peers in the tech sector recognise that what we have achieved with our WhisperClaims app has been a difficult challenge, requiring great levels of technical insight as well as significant domain knowledge in the sector.
Our market reach continues to expand, with users in both the accounting and business consultancy sectors embracing our technology to build new revenues and remove costs from existing processes. In line with this, our technical team is expanding so that we can continue to embrace innovation, developing new features and refining the user experience whilst thinking about new markets to exploit in the future.
Whilst all of this work continues, we are delighted to just take a moment to enjoy our success.
Here’s to another great year in 2019 – let’s see what we can win next year!
It’s that time of year again. All over the country, R&D tax credit advisors and consultants are locking themselves away in darkened rooms, often with a marketing expert sitting alongside, and poring over the latest R&D tax credit statistics from HMRC. Their aim? Breaking the statistics down into nice, neat bitesize chunks to be pumped out into a series of blogs, tweets and posts. It’s thrilling, and we just can’t resist joining them!
Here at WhisperClaims, we might not have a darkened room or even a marketing expert to hand, but we are massive statistics nerds, and boy, are these massive statistics (badoom-tish!).
So, what have we learned from the Research and Development Tax Credits Statistics of September 2018? We could go on about how, if you look at the statistics one way, manufacturing companies are not making enough claims, or about how the number of claims made by Large Companies appears to be stagnating, but we’d rather focus on the good news – more and more companies making R&D tax credit claims.
In financial year 2015-16, 39,765 SMEs made claims for R&D tax credits, an increase of 25% compared to FY 2014-15. For the financial year 2016-17, 37,360 SMEs have already made claims, and this number will continue to increase over the next year as clients reach the deadline for claiming. When we crunch the numbers, we predict that this will reach over 47,000 claims.
What does this mean for the R&D tax credit market? Well, these numbers prove that the growth in R&D tax credit claims comes entirely from the SME market, many of whom are first time claimants making small claims, for whom the traditional consultancy approach just isn’t suitable as processing costs for claims, and ultimately the market price for such services, are simply too high. As this trend continues, consultants and accountants will be coming under increasing pressure to process more claims, for smaller companies, at rock-bottom prices and margin. How can this be done? Given the costs of running a consultancy team, that’s a pretty difficult challenge – but one that WhisperClaims was specifically created to tackle. See what the software does at www.whisperclaims.co.uk – we’re confident that you’ll see the benefits for yourself during a 30-day subscription-free trial!
And if you want to read the full HMRC report, you can find that here
How do you test more R&D tax relief reports than there are grains of sand on Earth?
I don’t know about you, but it’s not often I get to dust off the theory I learned at university and apply it in real life. Recently, however, I had one of those oddly satisfying days when Computing Science gets dragged out of the cupboard and put to work. It started with a conversation with our developers about testing – specifically, what we should be testing and how to go about it.
By way of context, our software helps companies prepare claims for R&D tax relief, and one of its big strengths is that there is no free text entry – all inputs are multiple choice to make it as easy as possible for the user and their advisor. From those selections, the software automatically generates reports in natural, fluent English for customers to submit to HMRC. It’s beautifully simple to use, but the issue at hand was testing whether each combination of inputs yielded an acceptable report. To answer that, the first question we had to ask was ‘How many unique R&D reports can be generated by our app?’
Mmm, like, a lot..?
And this is where maths comes to the rescue! (I know, I don’t get to shout that nearly enough these days…)
Let’s take a question that presents the user with 10 different types of R&D activity and asks them to check off the 5 they’ve done. Mathematically, the number of different ways you can do this is expressed as C(n,r), where n is the number of options and r is how many you can pick. The formula for C(10,5) is:
10! / ( 5! x 5! ) where 10! = 10 x 9 x 8 x 7…and so on.
This is referred to by mathsy people as ’10 choose 5’, or ‘how many ways can I pick 5 things from a set of 10’, and the answer in this case is 252. That would be a pain to test manually, but I guess it could be done within a day or so. However, the problem gets much, much worse when you start to consider multiple questions in combination.
Let’s say our next question contained 45 possible options and you again had to choose 5. This gives you another C(45,5) options, or 1,221,759. Uh oh. Worse, the number of possible outputs by combining these two questions is 307,883,268. Even if we were testing 10,000 combinations a second, it would still take more than 8 hours to test all the permutations!
At this point I knew that the problem was really big, but I couldn’t stop there – out of curiosity, I wanted to know just how big. So, on the back of a (very large) envelope I worked out that for the 50 or questions we use to prepare a claim, our software could generate around 4.25 x 10^35 different R&D reports. The exponent form doesn’t really do it justice – writing it out in full is 425,000,000,000,000,000,000,000,000,000,000,000, a number so magnificently big I don’t even have a proper name for it. It’s far bigger than the number of grains of sand on Earth (around 7.5 x 10^18, apparently).
Anyway, why is this relevant? Well, while big numbers are inherently cool (ok, to somepeople, I admit), it’s because the solution – the application of clever techniques to drastically reduce the problem space so that it can be robustly tested – is evidence of the thought, care and attention to detail that’s going into getting the WhisperClaims software platform right. After all, when we’re supplying thousands of software-generated-and-tested R&D reports for accountants and R&D tax specialists across the country, and doing so in a completely automated way, there has to be some pretty slick maths and Computer Science underneath all that nice, colourful UI/UX.
So when you generate your next WhisperClaims R&D report, please take a moment to consider that it is one of 4.25 billionty squillion, and just like you, it’s pretty special 🙂
The costs of producing a R&D tax relief claim – and why you might be too small
As a former founder of an established R&D tax relief consultancy, I’m perhaps more familiar than most with the costs of preparing a claim for R&D tax relief. Actually, since “preparing a claim” can mean a lot of different things to a lot of different people, I should say that these costs were just the ones I had to consider – clearly there are lots of ways to skin a cat. (Please don’t skin any cats.)
The first issue, as with many companies, was finding good staff. Finding someone with good academic qualifications, industry experience and strong communication skills could easily set you back £45k, with employment taxes and pension costs taking that closer to £50k. Once you add in the costs of recruitment, providing that person with IT equipment, an office to work in and after allocating a share of the sales and marketing cost, you’re probably at around £75k, easily. Next up to consider is training – while your shiny new employee is getting up to speed, you’re probably not going to see much of a return on your investment. So, let’s throw another £25k into the pot for that, taking us to a nice, even £100k.
Next let’s consider the costs of engaging with clients (that’s clients, people who’ve signed with you, not prospects – let’s ignore for now the steadily rising cost of acquiring new R&D clients in an ever more competitive landscape). As a former consultant, I was all too aware that my clients were busy people and that their R&D tax relief claim was rarely a priority…until just before the deadline, when often it became their top priority. Mostly, however, getting and holding the attention of busy stakeholders was difficult, which meant that claims could take weeks – or more often months – to prepare and get approved. Time is money, as they say, and time spent waiting was money wasted.
The third big expense to consider was the opportunity cost of doing business with a particular client and working on a particular claim. If we accepted a company and their claim was small, our fees were smaller than if we’d spent our time working for another company with a larger claim. That means that consultants, at least those working on a contingent basis, tend to screen their clients for potential claim size before offering them a contract. And guess what, that screening takes judgement, a risk assessment and more communication with the prospect – all of which burns yet more money, I mean, time.
All of this means that there’s a natural ceiling on the number of claims that a consultancy company can prepare (they only have so much time), and a lower threshold on the size of claims that they’re prepared to take on (with high costs to cover, they’re judging you against what they might get elsewhere). This means that if you don’t have a particularly large company, or are deemed to have a ‘complex’ claim (perhaps involving grants, intricate corporate structure or are backed by a number of different investors), you might find that it’s hard to get help on a contingent basis – you’re just considered to be too much of a risk.
Now, if you’re an accountant who prepares claims, or a specialist R&D tax credit consultant, you might be nodding along ruefully at this point and wishing there was a better way. And yes, I’d agree, all the characteristics of traditional R&D consultancy mean that a large part of the market is currently being under-serviced, with lots of potentially valuable innovation going unrewarded in UK SMEs.
So why don’t we do something about that, together? With your clients, your brand and our technology? Why don’t we help more companies make more claims, support more UK innovation, help you get more clients and reduce your costs of delivery in the process? After all, wouldn’t it be nice to never have to tell someone that they’re too small again?
We’re off and running – a new approach to R&D tax claims!
After a hectic few months, I’m pleased to finally say that we’ve got the WhisperClaims team together and are ready to go!
Richard Edwards and Jen Smeed join as Director/Shareholders and Rick Henry as our Lead Developer.
We’ve built a fully automated software platform for the production of R&D tax claims. White labelled for Accountants and R&D Tax Specialists, we are able to produce R&D claims, from client engagement to full report production, in under an hour, all for a fixed fee irrespective of the claim size.
We’re still pre-launch (website to go live later this month) but our early adopters are already generating revenue from the platform.
A revolution? We think so.
If you’d like to know more, contact us and we’ll have a chat about how you can benefit.