Tax From The Trenches: Meeting A New Client That Qualifies For R&D Tax Credits
Earlier this week, I travelled out to Hertford to meet a new client who we’ll call Roger. He had recently become a client at Raffingers and had mentioned that he’d been approached by a specialist Research & Development (R&D) firm to see if his business might be carrying out qualifying R&D activities. I’d spoken to Roger on the phone and he was pretty sure there was nothing that would qualify, although, he admitted he didn’t really know much about the R&D rules or incentives. It is a conversation I have had many times with company directors who are very good at running their business, always looking to innovate and improve but don’t necessarily see that what they are doing might have an element of R&D to it. From our short conversation on the phone, I felt pretty sure that there were some qualifying activities and projects. I was certainly more than happy to invest half a day to go and speak with Roger about it.
Before talking about my visit, I have to say that the “specialist” firm that cold-called Roger was one of these “new-to-the-market” firms who promise low fees and a guaranteed claim. Roger told me the person he spoke to seemed to have very limited knowledge of R&D and was simply reading a sales script. Roger was not impressed and I’m glad he didn’t go ahead with the other firm as a tranche of poor quality and fraudulent claims has caused untold chaos to the R&D claim process this year.
As a result of various poorly assembled and inaccurate claims from these new “cowboy” firms, HMRC suspended repayments on all R&D claims for several months whilst suspicious claims were investigated. Even now, we are waiting for repayments to be released for several clients and I know other well-established R&D firms have experienced similar delays. HMRC have also brought in legislative changes to the administration process that start in April 2023, including a pre-registration. All of the larger and well-established R&D firms have no issues with HMRC tightening up on their procedures. It’s just a shame that some of these new outfits look at R&D as a way to make money off the back of incorrect and fraudulent claims, spoiling the process for everyone else. Anyway, rant over!
My meeting with Roger was one of those glorious occasions where you find the client to be a genuinely nice person, warming to them immediately. He was very proud of everything he had achieved in the business over many years and took great pleasure in showing me around the offices and the factory. He had a word, or a joke, for everyone that we passed and I could sense just what a popular boss he was. During our walk around, he explained to me that the only reason he had looked for a new accountant was that his existing accountant had been with him for 40 years and was getting on a bit. I laughed as Roger was well into his 60s, but still as fit as a proverbial fiddle.
“This is where we build the units,” he said introducing me to another area of the factory, “and this little team here do all the testing and making things fit”. I looked at him inquisitively. He explained to me what I already knew - that the company’s trade is pretty much a rarity in the UK, to the extent that I cannot really comment on what the company does without it giving away the name of the client and the fact that the business is extremely lucrative. But as a field leader, the company has no knowledge base on which to track any changes to their processes and procedures.
Everything has to be thought about and then tried, tested, prototyped and eventually built. “But wouldn’t you consider what you’re doing to be R&D?” I said, knowing perfectly well that it was. Roger smiled and shrugged, “but that’s just what we do.” he said.
This leads nicely to the point of this blog, in that there are so many directors that I have spoken to over the years who look at their day-to-day innovation work as being nothing more than making things better or improving existing products and processes. Admittedly, not everything done by every company qualifies as an R&D activity, and it does take a specialist to speak candidly to the director to establish what exactly takes place. After that, it is a case of identifying the qualifying expenditure and starting the process of making a claim. After the guided tour we eventually ended up back in the board room with several of the senior team members and a plentiful supply of coffee and biscuits. I broke the news that the company were clearly carrying out qualifying R&D activities and that a claim should be possible for the accounting year just gone and the year before that.
We ran through the nature of the costs that can be claimed and I provided an overview of the claims process and how, in this case, the claim should result in a substantial saving to the company’s corporation tax bill due later in the year. Roger’s face was a picture, smiling from ear to ear although a little bemused that he hadn’t realised that what his company did was qualifying.
As we speak, I have just received the first tranche of information from the company and I’ll be ringing Roger later today to arrange a further visit to the company in the next few weeks to discuss some provisional figures for what will be quite a large claim. My advice to anyone in a similar position who thinks there may be R&D in their business but just isn’t sure is to get a professional to come and see you and check that you qualify. Any decent R&D firm or specialist accountants won’t charge you for this, and it really is in your best interest as tens of thousands of pounds in tax savings could be at stake. If your firm is in the London or Home Counties then feel free to ring or email me. I’d be delighted to come out and see you, although some coffee and a few decent biscuits would be appreciated!
If you have any further inquiries, don't hesitate to email me at neill.staff@raffingers.co.uk or click here.