The purpose of an R&D claim report is to convince HMRC how and why your activity qualifies as R&D in both financial and technical terms.
For the technical part, the report needs to answer this question: How is your R&D aiding the advancement of science and technology in a particular field?
So can your accountant do this?
Whilst the best accountancy practices (e.g. firms with specialist R&D divisions) may have R&D tax expertise, almost none have the technical expertise crucial to writing an HMRC-compliant technical report that answers this question sufficiently.
As a result, they ask your engineers to complete a template, which they submit as the report. But this is problematic as your engineers don't understand or have experience with what HMRC expects in a report, increasing the risk that HMRC opens an investigation into your claim.
At Claimer, we’ve seen hundreds of claim reports, and we’ve never seen one prepared by a company, with the help of an accountant, that would pass an HMRC enquiry. This is worrying.
Before May 2022, most claims were paid out without being meaningfully checked. But since then, HMRC are cracking down and investigating thousands more R&D claims than it ever has before. So now it's more important than ever to be extra cautious about who you choose to file your R&D claim.
Why does an accountant need technical expertise when they can just interview your engineers?
Essentially, engineers that do not have extensive knowledge of the R&D qualification rules need another engineer with this knowledge to ask specific technical questions which reveal whether the activity is R&D and if so why.
This exercise of identifying qualifying and excluding non-qualifying activity is only effective if the person asking the questions understands the technology that is being discussed, as they will later need to clearly explain, from a technical standpoint, how this activity meets the definition of Research and Development for tax purposes.
This is not easy to do.
The writer must carefully separate the commercial and routine aspects of the activity, clearly ringfencing the advance, concisely explaining how the advance satisfies the guidance. It is not possible to do this unless you understand both the underlying technology and guidance very well.
For instance, Claimer’s tech specialist engineers undergo weeks of training and testing, directed by a highly experienced technical report writer. This includes working with a wide variety of different practical examples, before being carefully shadowed on a number of real claims.
It usually takes months before a Claimer report writer can produce a defensible R&D report from scratch.
The bottom line: asking your engineers to do the brunt of the R&D claim will lead to wasted time and resources and will most likely result in a non-compliant report.
Your chance of being investigated is much higher now
In response to a higher number of allegedly erroneous and fraudulent claims, since May 2022, HMRC have been scrutinising a significant proportion of claims filed by SMEs, especially in software.
These investigations are known as ‘R&D enquiries’, which are typically long drawn-out processes in which HMRC digs deeper into a claim to check the validity of the information provided, and whether the specified R&D activity meets their definition.
This means the number of claims being called back for an enquiry is much higher than it used to be. This means your odds of getting one have dramatically increased, even if your claim is small or your company is legitimately conducting R&D activity.
Why your accountant won’t be very useful during an R&D claim enquiry
Firstly, unless they explicitly state it (which is exceptionally rare), accountants aren’t obliged to help in the event HMRC opens an enquiry into your claim. If they do try to help, it usually comes at a cost.
But far more importantly, the company’s own engineers will be left to defend the technical aspect of the report. Without a proper understanding and experience of the qualifying R&D definition, this is difficult, if not impossible.
This is especially true with software claims, where HMRC utilise their trained internal IT experts to weigh in on enquiries – and they go very deep indeed.
These enquiries tend to go on for several months, and unless you can satisfy the tax inspector and their experts, your claim will be significantly reduced or rejected entirely, having to pay back the credit or saving with interest and penalties.
For a credit that usually represents a month of salary payments for a company, this most certainly isn’t cost-effective.
Conclusion
Like many other areas of tax, R&D is a specialist field, and so it pays to use a specialist provider. This is especially true with the increased HMRC scrutiny.
However, the R&D market is not regulated, and the few good providers that exist tend to have the highest fees: in-house expertise is expensive.
This is one of the reasons we started Claimer, to offer a service which offloads your risk and does the heavy lifting of a claim whilst using technology to keep fees in check.
Learn more about how Claimer is different and whether we can help you with your next R&D claim.
👋 If you’re interested in talking to an expert at Claimer about what you can claim, chat with us using the live chat (bottom right) or pop us an email. Or, if you’re ready, you could get started with your claim right away.
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