11TH OCTOBER, 2023

Should I Use a Specialist for R&D Tax Credits Claim?

In this blog, we aim to provide you with an informed decision on whether you should engage a specialist for your company's R&D Tax Credits claim. We will highlight the benefits of using a specialist and potential limitations of non-specialists.

Additionally, we will discuss common mistakes businesses make when claiming R&D Tax Credits, their cost implications, and why you should be aware of them. By the end of this blog, you will have a better understanding of what to expect from a specialist, how they can benefit your business and the potential savings.

What are R&D Tax Credits?

R&D tax credits are a valuable incentive introduced by the government to support innovation and business growth. They are designed to encourage companies to invest in research and development activities that can lead to advancements, new products, and services. SMEs and Large companies can benefit significantly from R&D tax credits, but it is essential to understand their definition, purpose, and eligibility criteria.

At its core, R&D tax credits represent a form of financial support offered by the government to encourage eligible companies to conduct R&D activities. These credits can either reduce a company's tax bill or provide cash payments for losses incurred during the R&D process. The purpose of these credits is to support innovation that can lead to the creation of new products, processes, or services.

To be eligible for R&D tax credits, an SME must meet several criteria.

  • Firstly, the activity must qualify as R&D according to UK tax rules.
  • Secondly, the project must be company-funded, aimed at advancing knowledge and solving a technical problem, and involve scientific or technological uncertainty.
  • Thirdly, the SME must be a UK company paying corporation tax, have less than 500 employees, and an annual turnover of less than £100 million.

SMEs can benefit from two types of R&D tax credits. The first is the SME R&D tax credit, which provides a tax credit of up to 33% of qualifying R&D expenditure. The second is the R&D expenditure credit (RDEC), which is aimed at larger companies and offers a tax credit of up to 13%. SMEs can benefit from either credit, depending on their size, annual turnover, and eligibility criteria. 

💡Post 1st April 2023 - Profit-making SMEs can claim back 21.5% (prev. 25%) of eligible development expenditure and loss-making SMEs can receive up to 27% (prev. 33%) of eligible expenditure as a tax credit payable in cash.💡

These credits offer valuable financial support and can greatly benefit eligible companies.

The Role of a Specialist in R&D Tax Credit Claims

With the opportunity that R&D tax credits bring to the table, many firms look internally at their in-house finance teams or accountants to claim thier benefit from the scheme.

However, to make the most of R&D tax credit claims, businesses shouldn't rely solely on the expertise of in-house finance teams or external accountants to guide them. This is where R&D tax credit specialists step in.

An R&D tax credit specialist is a professional with training and experience solely focused on helping businesses identify, document, and claim eligible R&D activities and expenses. They possess a deep understanding of HM Revenue & Customs (HMRC) guidelines, ensuring company compliance with the law while maximising potential returns.

The training and experience of these professionals contributes significantly to successful and maximised claims by identifying the full scope of eligible activities a company undertakes. This guarantees that all qualified expenses, including staff wages, software and consumables, are included in the claim.

Specialists stay up-to-date with HMRC legislation, ensuring a company benefits from any changes that may arise. They provide continuous consultation and support, ensuring that a company's claim is in line with its R&D efforts, avoiding oversights and penalties.

While accountants and finance teams possess a broad understanding of accounting principles and tax regulations, they may lack the niche expertise needed for R&D tax credit claims. R&D tax credit specialists bring the skills and depth of knowledge required for successful claims. They help businesses maximise their claims, minimise compliance risks, and save them time and money.

Benefits of Using a Specialist

One of the main benefits of using a specialist is the reduced risk of audits and penalties. With the specialist providing a precise and thoroughly documented claim, businesses are less likely to be challenged by HMRC. In the event of an enquiry, a specialist should provide the necessary support and documentation to ensure a successful resolution.

Another benefit is time savings. The process of identifying, documenting, and claiming R&D credits can be time-consuming. Specialists expedite this process, allowing businesses to concentrate on their core operations. This frees up valuable time and resources that can be used for other revenue-generating activities.

Continuous support and consultation is also an advantage of using a specialist. As companies evolve, so do their R&D activities. A specialist provides ongoing support, ensuring that a company's claims align with its R&D efforts. They are available for any questions or clarifications and can offer assistance with potential audits or queries from tax authorities.

Although businesses may be tempted to rely on their in-house finance teams or accountants, these professionals may lack the niche expertise required for R&D tax credit claims. Without the specialised insight that an R&D tax credit specialist provides, there is a heightened risk of overlooking eligible R&D activities or misinterpreting HMRC guidelines, which can lead to reduced claims or penalties.

Engaging a specialist may seem like an added expenditure, but the potential long-term benefits and savings, in terms of maximised claims and averted penalties, often outweigh the costs. Correct claims lead to increased cash flow that can be reinvested in R&D or used for other business activities. Conversely, incorrect claims due to a lack of specialised knowledge can result in financial penalties and missed opportunities.

The Role of Accountants and In-house Finance Teams

Accountants and in-house finance teams play a vital role in managing a company's finances in the UK. Their generalised knowledge of overall financial management is beneficial for a business, but it may not be sufficient for navigating the intricacies of R&D tax credit claims. Accountants may lack specialised training in R&D tax credits and may overlook specific nuances related to technology and research. Without this expertise, businesses may miss out on eligible expenditure or may even face penalties from HMRC.

However, this is not to dismiss the importance of accountants and finance teams in the R&D tax credit process. Their broad financial knowledge can provide valuable insights and ensure that companies have a strong financial foundation. They can collaborate with R&D tax credit specialists to document and capture eligible expenses and activities, reduce the risk of audit failures, and help companies maximise their potential returns.

Therefore, it's important for businesses to have a multifaceted approach to R&D tax credits, combining the expertise of both accountants and R&D tax credit specialists. This collaborative effort will ensure that a company's financial foundation remains stable, while also allowing them to leverage the full benefits of R&D tax credits. As businesses continue to evolve, so will their R&D activities, and having specialised support from both accountants and R&D tax credit specialists can provide the necessary continuity and support to ensure that a business remains competitive and innovative.

Common Mistakes Made When Not Using a Specialist

When it comes to R&D tax credit claims in the UK, it's easy to make mistakes, which can cost companies time and money. One of the most common mistakes is overlooking eligible R&D activities. Many companies assume that the activities they're working on are not eligible, and as a result, they miss out on potential tax credits. Another frequent misstep is misinterpreting the legislation around R&D tax credits. This can cause companies to either under- or incorrectly claim, leading to costly penalties or non-compliance.

Insufficient documentation and record-keeping is another oversight that frequently occurs. Proper documentation of R&D expenses and activities is key to supporting a claim. Inadequate documentation can result in HMRC enquiries, which can be time-consuming and costly to resolve. Moreover, without ongoing consultation and support from a specialist, companies risk falling behind on HMRC compliance standards.

Finally, the potential for costly penalties is the most significant risk of not using an R&D tax credit specialist. HMRC has specific guidelines for R&D tax claims, and any non-compliance can lead to hefty fines or under-claimed tax credits.  While engaging a specialist may seem like an extra expense, it's worth it in the long run, as it can minimise risk and maximise a company's R&D tax credit returns.

Cost Implication

When it comes to claiming R&D tax credits in the UK, companies may hesitate to engage a specialist due to the initial costs involved. However, it's important to consider the potential long-term benefits of using a professional to maximise claims while avoiding penalties. A specialist offers a deep understanding of the HMRC legislation, enabling them to identify the full scope of eligible R&D activities, document expenses, and expedite the process. This leaves companies free to concentrate on their core operations, saving them valuable time and resources.

In contrast, non-specialists may overlook eligible activities, misunderstand HMRC criteria and lack the specialised knowledge required to maximise claims. The risk of oversight can lead to reduced claims and even financial penalties.

While the price of a specialist in R&D tax credits may seem daunting at first, it's a risk worth taking to ensure a company maximises its potential claims while avoiding potential financial pitfalls. It is important for companies to understand that it's an investment that is far outweighed by long-term benefits.

Final Thoughts

While some companies may be hesitant to engage a specialist for their R&D tax credit claims due to perceived costs, the advantages far outweigh the drawbacks.

A specialist possesses in-depth knowledge of ever-changing regulations, which ensures maximum accuracy, efficiency, and compliance. Utilising a specialist's expertise means businesses can concentrate on their core operations rather than being preoccupied with R&D tax credit claims, saving time and effort. Additionally, a specialist reduces the risk of financial penalties, missed opportunities and decreased claims, offering a dependable and cost-efficient option.

Partnering with a special R&D tax credit provider is a smart business strategy and an investment that will reap long-term rewards.

Get in touch

If you would like to discuss any aspect of R&D Tax Credits or the Tax Cloud portal, feel free to contact our friendly expert team on 020 7360 4437 or send us a message.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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Myriad are the creators of Tax Cloud, we help enterprises navigate, apply and secure tax incentives and grants. We specialise in R&D Tax Credits, Creative Tax Reliefs, Innovate UK grants, Horizon Europe grants, and R&D Capital Allowance Claims.

  • Submitting R&D tax claims since 2001
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  • Over £70m claimed and counting
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Meet some of the team behind Tax Cloud

Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
Jillian Chambers Jillian Chambers Technical Analyst/Writer
Lauren Olson Lauren Olson Technical Analyst Manager
Rabia Mohammad Rabia Mohammad Corporate Tax Associate