Research & Development (R&D) tax claims are becoming more and more common – HMRC’s own statistics, as well as general noise in the market place, both suggest the same. Yet, we are still seeing a large number of qualifying businesses that don’t make the most of these hugely valuable claims, for two consistent reasons:
1) The view that they can’t possibly be doing R&D
This remains an issue, despite the number of claims having risen consistently since 2000. Perhaps the mere “research & development” terminology is off-putting, but you have to remember we are working to HMRC’s definitions, which are (somewhat untypically!) helpful and beneficial to the taxpaying business. Most businesses that are making something, anything at all (tangible or intangible), should qualify in some way. That’s the case, even if competitors are making the same thing!
The “making” may not even be for direct sale to customers, it could even be for the business’ own internal use. For years, the biggest single claimants of R&D tax relief in the UK were the big banks, developing and enhancing their own software systems.
2) Previous years R&D has been significantly under-claimed
Many advisers claim to know R&D, with a number of “specialist” R&D boutiques having popped up, alongside the longer standing accountancy firms. This highlights the belief that there are many businesses out there that are yet to benefit from R&D, but also (unfortunately) may mean that the quality and value of claims being submitted has suffered. Perhaps a bigger crime than not recognising that your business may be able to claim for R&D at all, is making a claim but for less than you could!
In a very recent case, we were engaged by a Nottingham-based IT network security business (Nexor) to prepare their 2018 R&D claim as well as undertake a detailed review of the previous two years claims which had been prepared by their previous advisors. Very early on, it became apparent that there was a considerable area of development work that had not been considered in these earlier claims, as the R&D elements were less obvious. Following on from these we revised and amended the claims for 2016 and 2017 achieving additional corporation tax repayments of circa £50k and £75k respectively. We also prepared the R&D claim for 2018 taking into account the wider range of activities noted, and successfully achieved a circa £175k cash rebate for that year. So, that’s additional cash repaid for the three years of around £300k!
Steve Kingan, Chief Executive of Nexor, commented “Magma’s way of working really made the difference for us. Our business is highly technical in itself, so with the equally complex tax rules, we needed an astute and strongly commercial approach. The whole project with Magma was first class. With the previous advisers, it felt like there was a big disconnect – they didn’t properly grasp what we do and they didn’t help us understand the rules and HMRC’s approach. In our minds, that’s what explains the huge difference in results”.
In this case, at the outset, we had no better understanding of the client’s business than the previous advisers. However, our detailed knowledge of HMRC criteria, approach and working practices in R&D cases, meant that we were able to better appreciate what was relevant in the client’s business, ensuring we were able to maximise the claim values and limit the time commitment of the business principals throughout.
Put simply, it’s the application of our knowledge in the R&D field (rather than simply the knowledge itself!) that’s sets us apart and is making a real difference to our clients. The team, headed by Michelle Andrews (formerly of Ernst & Young), is currently working on around five claims per week. Michelle commented:
“Our approach to R&D work and knowledge of HMRC protocol and practices, ensures we are able to focus very swiftly on what is ultimately valuable to clients. With a deeply scientific academic background, even after more than 10 years of working on R&D projects, this is something I’m really passionate about.”
To discuss R&D in the context of your business, please contact Michelle herself or Victoria Tunaley on 01788 539000.