Blog: 3 ways to claim R&D tax credits and which is right for your business
If you know you qualify to claim R&D tax credits, then you might be wondering how you should go about making a claim? All R&D tax credit claims are administered by HMRC, but in what can be a complicated area of tax, the key decision to make is whom you choose to compile and submit your claim.
In the current market, you have 3 main options:
- Do it yourself (DIY)
- Use your accountant
- Go with a specialist
Below we discuss the advantages and disadvantages of these 3 options to help you decide which is right for your business.
Submitting a claim yourself
If you’re considering submitting your own claim, you would of course be led to believe that this is the free option, right? You should not let yourself fall into the trap of this common misconception. It goes without saying, you will get the benefit of not having to pay an external supplier fee, however, you will incur costs as a direct impact of the following three things.
1. It will take you longer than an expert to compile and submit your claim
Like with anything new, you will need to do your research, understand the technicalities of the scheme, and get to grips with exactly what you can and can’t claim for. And that’s all before collecting your data and preparing the documents needed to submit your claim. The longer it takes you to complete this activity, the more it will cost you. We know time is a valuable commodity for business owners right now – is this something you really have the capacity to take on? And is it the best use of your time?
2. You are likely to overestimate or underestimate the size of your R&D tax credit claim
Without the experience needed and access to the right skills to compile these claims, you’re effectively taking an educated guess. The implications of overestimating your claim value can lead to an HMRC enquiry (we’ll talk about this in a moment) and underestimating your claim value can prevent you from getting the right amount of tax relief or cash that your business is entitled to.
3. Inaccurate claims lead to dreaded HMRC enquiries
From our experience, this is one of the main reasons why companies avoid dealing with this niche area of tax themselves. If HMRC opens an enquiry on your business because they believe there is an error in your claim, you will need to spend a lot more time convincing them that your calculations are correct – with evidence. If you cannot substantiate your claim or abide by HMRC’s timescales, you are likely to receive financial penalties
However, for very small claims with under £50,000 of qualifying R&D expenditure, a DIY claim may be an appropriate option to consider. But we suggest you use the guidance of an online claim portal such as Nova tax credits, where you can access online support and helpful advice whilst you compile your claim yourself. This hybrid option comes with the added reassurance that your claim will be covered in the case of an HMRC enquiry.
Using your accountant
Accountants are good at numbers but are not engineers or come from your world of expertise. R&D tax credit claims and usual accounting activities are very different, requiring a different set of skills and expertise. Most businesses have an accountant and so allowing their accountant to manage their claim seems like an obvious and natural decision.
Working with your existing accountant can be an easy choice because they are already a member of your team, have access to your financial information and already know your business. Using your accountant will mean that you don’t need to spend as much time compiling a claim yourself or searching for the right specialist.
However, the problem is that an R&D tax credit claim is more than a numbers exercise, it requires technical knowledge of aspects of the projects being claimed for as well as an understanding of the claim process, qualifying activities and HMRC requirements. With regular Tax legislation changes, can you be confident that your accountant’s knowledge is up to date in this niche area?
In our years of experience, we have had clients approach us having made a claim with their accountant and received a low claim value. We have also met clients who have failed to claim despite being eligible because they were never advised to. R&D tax credits is not an accountant’s bread and butter so it will never be their core strength.
Going with a specialist
The final option are R&D tax credit specialists, experts that have experience designed to support you through the claims process. R&D tax specialists are also likely to be members of professional bodies such as The Chartered Institute of Taxation (CIOT) and sit on the HMRC R&D Consultative Committee – a group of HMRC staff and R&D Tax Credit advisors that meet twice a year to discuss the R&D Tax Credits Scheme. This means that you can be confident your advisor is up to date with the latest industry developments and will champion the needs of its clients.
Employing industry-specific technical analysts gives specialists the ability to understand the details behind the processes in your project, which can lead to more qualifying activities being identified and potentially a higher claim value. This is where DIY claims and using accountants, by comparison, are very weak.
With the experience of submitting various types of claims, across all sectors, specialists can create accurate claim reports to submit to HMRC. They can also spot claimable elements in projects that others may not be able to see, such as indirect activities that qualify (administration, clerical and maintenance etc).
However, when exploring this option, be sure to keep in mind that some companies claiming to be specialists will outsource elements of your claim to other parties, which can lead to mistakes and delays. This is important to check before choosing a specialist.
It goes without saying that if you opt to go with a specialist, it will cost you more than either filling your own claim or using an accountant. However, the additional credit you may receive could offset this. Furthermore, if you were to be investigated by HMRC for any inaccuracies, a specialist will often defend you as standard.
Want the best of both worlds?
At MPA we bridge the gap between Accountants and Specialists. Founded in 2004, with a vision to strengthen the UK economy through innovation, we’ve helped over 2,000 UK businesses access over £210m in R&D tax credits. But we are now much more than that, employing technical experts, tax specialists and industry-leading AAT and ACCA qualified accountants – to offer you the best of both worlds. So, whether you require statutory accounts, R&D tax credits or even grant funding, our suite of professional services have you covered under one roof.
Our experts are on hand to help you make your choice, book a 30-minute meeting and discover whether we’re the right fit for you.Book a 30-minute meeting with MPA