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DON'T BELIEVE THE HYPE

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Over the last few days I have heard two (independent) stories about approaches being made by a supposedly reputable R&D company in the NW.

The first was a cold call telling an insurance company that they could expect £25k by making a claim. This was without any discussion or assessment about the company’s activity, just a blanket promise that the claim would go through.

The second was to a business coach who was promised £12k because they had to undertake “research” for the service they provided to their clients – stating that they had made similar claims in the past that had been approved.

NEITHER of these companies are involved in any work that would qualify under the scheme and this R&D firm has omitted some really important facts when talking to these businesses.

1. To qualify for relief a business must be attempting to make an advance using science or technology. “Research” must be related to the resolution of a technological issue, so developing concepts, ideas or writing a book does not qualify.

2. An R&D claim is never “approved” by HMRC. Even after a claim is processed, HMRC can launch an investigation, impose fines or demand full repayment at any point over the next seven years.

3. Just because one of your competitors has made a claim it is no indication that you are eligible for relief yourself. You must be able to establish that you have made a technological advance and be able to justify your claim in the event of an HMRC enquiry.

It was by chance that I know the people that run these businesses and it was lucky that they could call me to clarify the position. If they had gone ahead the likelihood is that they would have been forced to repay any benefit received, which would have had profound consequences for both companies.

Everyone wants to get the most out of making an R&D claim but ask yourself a few questions before you are lured by the promise of a big pay-out:

- Are you talking to a specialist or a sales person?

- Have they explained the rules to you and do you understand what qualifies under the scheme?

- Has a consultant scoped your R&D work and are you confident they have identified legitimate qualifying activity?

- Will the consultant help you prepare the correct supporting documentation including a detailed technical narrative?

- If, at some point in the future, HMRC want to launch an enquiry into your claim, will the R&D consultancy firm be there to support you and help you defend it?

I am confident that the vast majority of R&D firms are diligent and adhere to the rules but if there is any doubt in your mind you should double-check with an expert.

As always, if it sounds too good to be true, it probably is!

Using specialists to claim your R&D

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I’ve heard of a few companies recently that are offering an R&D service for fixed fees or very small percentages and although you should never be overpaying, there’s a few questions to ask before you sign up.

1. Are they a reputable company and do the company have a track record of successful claims?

2. Could they be putting your business at risk by giving you incorrect advice?

3. Do they fully understand the scheme and are they going to help you understand the rules?

4. Will they help you maximise your claim by including all allowable costs?

5. Are they going to help you support your R&D claim by preparing a detailed technical justification in the format required by HMRC?

6. If HMRC decide to investigate your claim, are you going to be supported through that process? If there is any doubt in your mind it is always a good idea to talk to a specialist. The consultations are free and the advice you receive will equip you to make the best decision for your business.

As with everything – if it sounds too good to be true, it probably is! 

Maximising your R&D Claim

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Maximising your R&D Claim:

Don’t be put off if your business is loss making or the project you started was ultimately unsuccessful - your company could still benefit from the R&D scheme.

The R&D scheme is designed to reward companies that have invested time, money or resources and once it’s established that you have a qualifying project, it is important to make sure that all the costs are included.

Normally your biggest expense will be from the time you and your team have spent working on an R&D project. As well as a percentage of any salary costs you can include pension contributions and employers NIC in your claim but, unfortunately, dividends can't be included.

Any third party expenses relating to your project can be included, so if you have subcontracted any work (e.g. software development, analysis, testing etc.) you can claim 65% of these costs in your submission.

Expenditure on materials or consumables that are used up or transformed during the R&D process can be added, including any prototypes or samples AND you can also include any direct utility costs. Also, if you have purchased any items that directly relate to the R&D aspect of your project – including certain types of software – you can include these in your claim to maximise the benefit you will receive.

Once you have calculated all of these costs you can then apply an uplift of 30%, which the government allow as an additional incentive. This means that for every £100k of expenditure, you can add £30k to your total claim value!

EVERY business wants to get the most out of an R&D claim but it is important to remember that any cost you include needs to stand up to scrutiny in the event of an enquiry from HMRC.

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