How to Ensure you Choose the Right R&D Tax Credit Advisor
It is no secret that HMRC are enforcing a variety of measures to prevent abuse of R&D tax credit claims following the recent identification and prevention of fraudulent attempts totally over £300 million. This is a loud and public warning. Choosing the wrong advisor can potentially place you in very deep water.
But what does this mean for companies making R&D tax credit claims?
LimestoneGrey’s Managing Director, Matthew Jones, answers some FAQs in a bid to provide clarity on the supplier selection process.
What are the main considerations when choosing an advisor?
When looking to employ any professional service, there are inevitably a mix of factors to consider before selecting your preferred supplier. To put it simply, you should ask yourself the following questions:
- Can they do the job effectively and efficiently?
- Can you find evidence on how the supplier has helped others?
These questions seem simplistic enough on the surface but in practise, how do you find the answers?
My advice would be:
R&D tax credits is a complex area of tax law, one of which is not offered as standard by mainstream accountants as it is not a compliance service. Due to its highly technical nature, it is imperative that your advisor has the necessary qualifications needed to undertake the work with the highest level of detail and accuracy. The advisor should be a qualified chartered accountant (ACA or ACCA) or chartered tax advisor (CTA). Having these qualifications will guarantee that they have passed the necessary exams and are regulated by professional bodies, enforcing them to follow strict codes of conduct.
A chartered advisor should have experience in a variety of areas of corporation tax, allowing them to understand how the R&D tax credit claim will impact other aspects of your finances, which is important. For example, a chartered professional can talk you through the options which may be available to you after your claim is made, and advise on the best way to optimise the cash benefits generated.
I would investigate the volume of claims made by the advisor. Should they only help prepare a handful a year, it is unlikely they will have the detailed knowledge and experience to deal with all aspects of your R&D tax credit claim. The complexity surrounding the ever-evolving rules and regulations dictates that a significant amount of time needs to be dedicated to this discipline.
A full-service consultancy will take you through the entire R&D tax credit journey, from initial consultation, through to submission and beyond. This will not be the case with all suppliers, with some forcing you to rely heavily on your own accountant after the claim has been put together. These advisors tend not to be registered with HMRC and are therefore unable to submit the claims on your behalf.
Check the supplier’s website for any testimonials or case studies providing information on the experiences of other clients. I would also recommend browsing their social media channels to see if they have published any good news stories or successes. Social media is also a good place to investigate whether the supplier has any partnerships/relationships with any reputable organisations that would give you peace of mind on their integrity.
The majority of consultancies will provide a free no obligation assessment of your company’s situation and will provide advice on whether they feel it is worth pursuing a claim. I would recommend getting a second opinion, you have nothing to lose.
When engaging with an R&D tax credit advisor, I would advise to proceed with caution if any of the following situations occur:
- The advisor alludes to the claim value in the initial meeting
Without the relevant investigations and detailed calculation exercises, it is impossible to say how much your claim will be worth from an introductory meeting. This approach can sometimes be used to lure a company into signing the contract.
- The advisor takes a blanket percentage of your employees’ wages to include in a claim.
Not all employees will spend the same amount of time on R&D activities, so it is important that an advisor looks at each employee separately when calculating costs to include in the claim. Taking a blanket approach will inevitably mean that you are over-claiming/underclaiming on certain employees. Both scenarios could provide issues.
- An advisor’s fee seems too high or too low.
We have seen some advisors charging 25% – 35% contingent fees. This cannot be justified. Other advisers charge super low fees. This too should concern you – either they will not spend much time on your claim, or they will have to use low/unqualified staff to prepare it. A supplier’s fee size should not be used as the sole metric when choosing an adviser. Simply choosing the cheapest option can be a false economy. Quality, security and professionalism must also be of high priority.
- The advisor ties you in with a long-fixed term contract (usually hidden later in the terms of the contract)
We have seen companies tied into 5 year contracts with super high fees, and in some cases, some clients being duped into signing for long periods with the tie in clause being hidden in the supplier’s contract. In our view, this is unjustifiable. They obviously are not confident in retaining you as a client based on the quality of the service.
Surely all R&D tax credit advisors are qualified accountants or tax advisors, aren’t they?
Unfortunately, not. Surprisingly, unlike in the law profession, regulation is not compulsory in order to set up an R&D tax credit consultancy. This has opened up the market to unqualified and unregulated companies setting up to make a quick buck. Make sure you check their credentials!
Should I re-evaluate my current advisor?
As with any supplier, it is important to evaluate the service you are receiving on a yearly basis. This will ensure you are continually getting the best service for your requirements at any given time.
One area of caution that I would raise is the issue of contract tie-ins. As noted earlier, some consultancies can forcibly tie in companies for three, four or even five years, preventing the company from switching to another supplier if they are not happy with the service or the claim outcome.
Who has the overall responsibility on the accuracy of my claim?
You as the company directors have the overall responsibility for the accuracy of your claim. Therefore, you need to have full confidence in your supplier to do the correct calculations and produce an accurate report.
You need to ensure that the company has the relevant insurance policies in place which will go towards protecting you if anything did go wrong.
What does it mean when advisors say ‘a claim can withstand HMRC scrutiny’?
When an R&D tax credit claim is submitted, HMRC have the right to go through each section with a fine-tooth comb to ensure that:
- The cost calculations are correct and following the rules and regulations in place
- The project report provides the necessary information to justify i) you are doing qualifying R&D and ii) the size of the costs being included in the claim.
A good advisor will ensure that each stage of the claim is prepared correctly and to HMRC guidelines and protocol.
If any of the above are not satisfactorily met, HMRC can open an enquiry which can be a major headache to resolve.
What is an enquiry?
An enquiry is a process initiated by HMRC which allows them to look deeper into your claim, giving them more time to investigate its eligibility. This could be because of two reasons:
- HMRC have concerns over the content of your submission
- A claim submission has been chosen at random for a spot check
This will of course delay any potential payment.
Initially, HMRC will request further information on the content of your claim and may ask for supporting documentation. If this is not sufficient, a meeting can be requested to discuss the situation which will give HMRC the platform to ask further questions. It is worth pointing out that a competent advisor will work with you through each stage of an enquiry but it is you HMRC will want to speak to.
HMRC has the authority and can implement severe penalties if they determine there has been negligence, or deliberate fraud to overstate the claim. This can be up to 100% of the total claim value and potentially lead to further consequences.
LimestoneGrey is a specialist R&D tax credit consultancy regulated by the ICAEW and CIOT and its team are chartered tax professionals, providing the highest level of experience and competence. The fact that we are regulated ensures that we follow a strict code of conduct and have the necessary insurance covers in place to provide our clients with the upmost protection.
At LimestoneGrey, we do not tie companies into lengthy contracts as we are confident that our clients return to us year after year as they are confident in our ability to do the job correctly and are happy with the claim preparation process we provide.
LimestoneGrey has partnered with a variety of accountants who do not offer this service in house to ensure that their clients have access to the relief and have built relationships with a variety of organisations and universities to promote the benefits of R&D tax credits and explain the eligibility criteria.