Anyone can become a good practicing R&D tax expert—with the right foundations
Share this article
For accounting firms, R&D tax credits offer a substantial opportunity to boost revenue and strengthen client relationships. Perceived complexities can be easily overcome with the right approach and support. Indeed, by embracing a few simple practices, any company can become an expert in R&D tax.
Growing revenue through new business is always far more challenging than unlocking revenue from an existing client base. However, a significant number of accounting firms are losing out on value-added opportunities as a result of their lack of confidence or knowledge in R&D tax relief. Lost income isn’t the only consequence. Advisors who follow best practice are now in an ideal position to use their extensive client knowledge to mitigate their clients’ risk of and potential exposure to interrogation over fraudulent claims, ahead of HMRC’s introduction of more stringent R&D tax processes in April 2023.
So why are firms reluctant? There is no doubt that the R&D tax credit procedure is different. Compared to other areas of tax regulation, it is less prescriptive and leaves greater room for interpretation. But it is readily understandable by a qualified accountant – even an unqualified trainee. Understanding what HMRC considers to fall under the scope of research and development is the key competency needed. Astrophysicists and Formula 1 manufacturers are not the only people who employ science and technology to overcome business challenges. Not at all. Every day, UK firms of all sizes engage in R&D activities, from civil engineers to food manufacturers, construction to software developers, yet far too many have not yet filed claims, losing out on critical cash.
The most important thing to keep in mind is that, as an accountant, you already have a far deeper relationship with your client compared to any other service provider they may contact. Once you have raised your level of understanding, you are in the perfect position to optimise this.
Accountants already have a unique and in-depth understanding of their clients’ operations – insight which, as professional advisors, will help to highlight those companies most likely to qualify for an R&D tax rebate. Furthermore, with access to tools like R&D tax claim preparation technology, developed by R&D tax professionals, they are able to significantly speed up the process. This technology enables accountants to easily determine the top targets within their client base, indicating where to focus the efforts of their emerging R&D tax service.
Using this priority list in conjunction with their understanding of the criteria HMRC stipulates, an accountant can then leverage their client knowledge and relationship to engage in a conversation regarding daily R&D activities and unlock potential tax relief opportunities.
Moreover, facilitated by a specialist R&D tax claims preparation platform, accountants can be assured of a structured and replicable process that prompts the right questions to ask clients during these conversations, and highlights answers that are either in sync with, or fall outside of, the HMRC parameters. For instance, claiming 90% or 95% of a person’s wage will not fly: holidays, time off, and even tea breaks make it nearly impossible for any person to spend 100% of their time on R&D activity. Also, a restaurant owner adding vegan alternatives to the menu is not on the same level as a food producer starting the development and manufacturing of a fully plant-based product line. The latter will undoubtedly be eligible for R&D tax assistance, but not the former. Accountants should use their position as “professional advisors” in this situation to push back against clients, especially those who may have previously been unwittingly misled.
For the last twenty years, since the introduction of R&D tax rebates in 2001, best practice has been the provision of a detailed report, complementary to the CT600 form, to mitigate the chance of HMRC asking supplementary questions. The technical purpose of the claim as well as the business context must be covered in this report, e.g. the challenges faced; how science and technology were used to overcome these; and the professionals employed who overcame them. Simply put, if the challenges weren’t difficult to solve, it wasn’t R&D.
It’s also critical to keep in mind that R&D claims cannot simply be copied and pasted from year to year. R&D is not necessarily a constant; demand for it changes in line with the evolution of the business’ activity or stage of development. as businesses change and go to the next stage of development.
The accountant’s already solid client relationship and interpersonal abilities come into their own in such situations. Particularly if the appropriate course of action is to suggest that the client should not submit an R&D claim, an accountant must feel comfortable advising the client accordingly. The claim belongs to the client; if it is contested, the client will be the one facing an HMRC investigation. An advisor must be self-assured enough to refuse to input erroneous claims without endangering the client relationship.
Recent years have seen accountancy firms strengthen their position as dependable, trusted business advisors. Discussions regarding a business owner’s long-term objectives, succession and exit plans, as well as pensions and investments, have become commonplace. It should be natural to include R&D tax into these conversations . Asking a customer about their investment in R&D should be a common practice – business as usual – just as it is to inquire about investment in infrastructure or buildings.
The only thing preventing accountants from successfully adding R&D tax to their suite of services is a lack of confidence. Yet, any reservations can be addressed with a straightforward ‘back to basics’ R&D training course, as well as using technology to gain access to a completely new revenue stream with their current clientele. Now that HMRC is openly calling for a much more rigorous, trusted, and evidence-based approach to R&D tax from 2023, accountants hold all the cards they need to gain confidence and give clients the trusted service they desire.