Have clients and accountancy firms become too nervous about fully identifying qualifying expenditure for an R&D tax relief claim? In light of controversies and policy decisions over the past couple of years, it seems like many accountants, including the household names, have become nervous about claiming the relief their clients are entitled to.
The spotlight on R&D tax relief claims
At Source Advisors, we have certainly seen an increase in HMRC enquiries into R&D claims, as everyone has. We have realised that claims can be successfully defended with clarifications and further evidence. In any enquiry we have faced, HMRC’s challenge has never been with how much qualifying R&D expenditure we have identified. This suggests that even in these times of increased scrutiny, we are optimising fully compliant R&D claims for our clients.
A lower claim could be laziness or incompetence – not caution
You may feel that finding more qualifying expenditure is somehow risky. But using the rules of the schemes to fully identify and frame R&D projects isn’t where the risk lies. It’s simply a matter of taking the time and bringing experience and expertise to bear.
A lower claim value is rarely driven by more cautious attitude to compliance risk. We consistently see a lack of technical understanding, lack of effort or resource, and lack of motivation from other providers, including the very largest accountancy firms.
There is a sense that some firms do just enough. You may feel pleased that your claim has gone from £500k to £1million – but what if it should have been £8million each year?
A poor claim is a poor claim regardless of size
Whilst it is important to fully optimise a claim, it is even more important to know where to draw the line. There is a compliance point here, too. Regardless of claim size, sometimes claims go too far or have been written up in a non-compliant way, i.e., there might be compliance, but the way it’s been written feels like there is none – perhaps there isn’t compliance, and it shouldn’t be in at all. Claiming a smaller amount incorrectly is riskier than claiming the right amount well.
Does the cost of enquiry lead to over-cautious claims?
It’s more common now to see R&D enquiry defence excluded from standard fees with large accountants, a nod to a less certain outcome, but also another risk to come to terms with. Where it is included, this could be encouraging an over cautious approach, especially with advisors where time and materials are more important than client outcomes.
What that could cost your business
The largest accountancy firms are just as likely (if not more likely) to leave value on the table.
We have seen examples with our clients where we have regularly been able to increase claims by 5-fold and, in one case, up to 8-fold increases. These increases don’t come from a fraudulent attitude of claiming for everything, but rather discovery through asking the right questions, how projects are defined from top down, not bottom up, increased effort to have conversations with technical professionals through the business proactively, instead of expecting them to come to us.
