Tax from the Trenches: “R&D? It's what we do”

Last week I found myself on the M11 travelling out to the wilds of Hertfordshire to meet a new client. He had recently become a client at Raffingers and had mentioned that he’d been approached by a specialist R&D firm to see if his business might be carrying out qualifying R&D activities. I’d spoken to him on the phone and he was pretty sure there was nothing that would qualify although he freely admitted he didn’t 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 and look 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, and was certainly more than happy to invest half a day to go and speak with the director about it. It was one of those wonderful meetings where you find that the client is a genuinely nice person and you can warm to them immediately. He was very proud of everything he had achieved in the business over many years and took great pleasure 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 the director was well into his 70’s, but was 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 and 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 through 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. “But it’s what we do” the director replied. This leads nicely on 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 a 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 to 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. The director’s face was a picture. Happy as Larry and smiling from ear to ear, slightly bemused that he hadn’t realised that a claim could be made and ruing the earlier years that were beyond the claim time limits, but thoroughly appreciative of the visit and putting things right for the future. As we speak I have just scheduled in the first of several visits back to the company to start work on 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 to check. Any decent R&D firm or specialist accountants won’t charge you for this, and it really is in your best interest as thousands of pounds of 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. To see if your company is qualified for R&D tax reliefs, contact neill.staff@raffingers.co.uk or call him on 020 8418 2671. You can also follow him on LinkedIn. Previous Blogs:

• Tax from the Trenches: “The best and the worst of HMRC”
• Tax from the Trenches: “I got it wrong...he said”
• Tax from the Trenches: “How much does HMRC know?”
• Tax from the Trenches: "Old Friends..."