Why you should be wary of ‘cowboys’ looking to exploit unsuspecting business owners with R&D tax relief.
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Why R&D is good for the UK economy? Research and development (R&D) helps the UK economy in several ways. Pursing new and innovative solutions requires increased manpower, leading to the creation of new employment. Indeed, the impact of R&D helps the UK respond to the growing challenges presented by the global business landscape, such as climate change and pharmaceutical development. As a result, firms can benefit from increased profits, further driving national economic growth.
Who qualifies for R&D tax reliefs?
Innovative businesses investing in new areas of possibility through research and development may qualify for cash through credits, or corporation tax reductions, via tax relief. Specifically, R&D is defined by HRMC as part of a specific project that makes advances in science or technology. This does not apply to social sciences, such as economics, or a theoretical pursuit, like pure maths.
To obtain R&D tax relief, claimants must prove their project:
Helps advance its specific field
Overcame issues within its implementation
Attempted to overcome these issues
Could not be resolved by an industry professional
If you’re unsure if your business fits, ask yourself the following five questions:
Have you developed your own software?
Have you developed internal processes that reduce costs and improve production times?
Has your company made advances in science and/or technology?
Are you using existing technologies in unique ways?
If the answer to any of the above is ‘yes’, speak to a tax advisor about the next steps. If processes within an organisation are being improved, or attempts are being made to improve them, there may be a case for a claim.
Examples of sectors which could benefit from R&D tax relief include aerospace, construction, engineering, food and beverage, manufacturing, pharmaceuticals, and software development.
R&D tax relief cowboys
There is reason to be wary, however. R&D tax reliefs can be a minefield, as they are a a complex form of tax relief to claim for. Due to their intricate nature, businesses are advised to seek professional help to ensure they don’t make an unlawful claim and end up in hot water with HMRC.
Unfortunately, there are some organisations that seek to profit from the process of claiming for R&D tax relief from unsuspecting businesses. These ‘claim cowboys’ capitalise on the complex nature of R&D claims, and often pose as experts offering to assist business owners. Cold-callers with detailed sales pitches may convince senior business leaders of their authenticity, free of the rigours of regulation or governance. They may promise minimal involvement from the business, to further improve the attractiveness of their offer. Many will exaggerate the activities which could qualify as R&D, which may encourage potential clients to sign up to their commission-based fee schemes.
Should you accept the assistance of an unregulated body, you are potentially risking an HMRC investigation and large fines, should any errors be made during the R&D tax relief process. Worse still, businesses that do not meet the criteria for a claim may be wrongly convinced to apply for reliefs they are not entitled to. In both cases, business owners can find themselves on the receiving end of HRMC penalties, whilst the cowboys face no punishment. Such activity also damages the reputation of highly knowledgeable, experienced R&D advisors who provide specialist client advice.
It would be good to see more regulation around R&D advisors to filter out claim cowboys and ensure only qualified professionals are advising businesses. R&D tax reliefs represent invaluable reward for businesses who truly seek to push the boundaries of their industry. However, they are difficult to understand, with numerous complicated caveats and criteria. As such, it is worth seeking professional advice, and avoid unregulated companies who may land your business in hot water with HRMC. If your accountant isn’t an R&D specialist, most likely they will know someone who is.