The costs of producing a R&D tax relief claim – and why you might be too small
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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?