Ways to elevate your R&D tax offering
In a bid to tackle errors and suspected abuse of the R&D tax relief regime, the two RDEC and SME tax credit schemes have been merged as of 1 April 2024 to streamline the relief and help control its overall cost
The UK’s government’s net expenditure on research and development (R&D) – excluding the EU’s R&D budget contributions – rose by 10.5% to £15.5bn in 2022, the Office for National Statistics revealed on 30 April 2024.
This comes as the government has a target to raise R&D investment to 2.4% of UK GDP by 2027.
According to the government, R&D tax relief contributes to that goal by reducing the cost of innovation for UK companies by making it more effective for these entities to increase.
However, in a bid to tackle errors and suspected abuse of the R&D tax relief regime, the two RDEC and SME tax credit schemes have been merged as of 1 April 2024 to streamline the relief and help control its overall cost.
As a result, the merged credit rate is now 20% on all qualifying expenditure for all qualifying businesses, regardless of their size. The only exception has been made for loss-making ‘R&D intensive’ SMEs.
Despite all the efforts to make claiming R&D more effective, the tax credits process remains a two-part challenge for most small and medium-sized enterprises.
The first hurdle is to prepare your client to show HMRC in detail exactly what their company has spent on R&D activities, and this entails knowing specifically which costs are eligible and which are not. When you consider that every R&D project is different, and therefore every application is as well, it is no small feat.
The second – and even trickier – part of the application is to show HMRC that the project your client’s company has been working on meets all the strict criteria for R&D. This is because the HMRC inspectors receiving the R&D application will not have had the time to study and understand the technology used in their industry, so they will need to be told in no uncertain terms what the company has done, and why it deserves the tax break. Make sure to use language that is clear and easy to follow.
Here are some tips to consider for your R&D offering:
Stay updated on legislative changes
The R&D tax landscape is subject to periodic legislative changes and updates. In order to provide accurate and reliable advice, it is crucial for accountants to stay informed about any amendments to tax laws and regulations. R&D tax reliefs are a specialisation within business tax legislation, so be sure to regularly monitor official government sources, attend relevant seminars or webinars, and consider joining professional networks or forums dedicated to R&D taxation.
Brush up on industry-specific expertise
Deep industry knowledge is indispensable when advising clients on R&D tax credits, because it can give them an edge with HMRC inspectors. Understand the specific challenges, technological advancements, and R&D activities prevalent in your clients’ industries. As a highly technical field, it also requires an understanding of the R&D BEIS Guidelines and an appropriate level of technical knowledge to help provide insight into the claim. This includes the ability to explain why there is technical uncertainty and an appreciable advance in capability or knowledge within the project. You should also be able to maximise tax savings and provide tailored advice that aligns with your clients’ business objectives.
Craft a robust documentation process
Effective documentation is half of the battle to filing a successful R&D tax claim, so encourage your clients to maintain comprehensive records of their R&D activities, including project timelines, technical challenges faced, and resources allocated. As their financial adviser, you should provide them with standardised templates or tools to streamline their documentation process, ensuring compliance with HMRC requirements. A well-documented claim not only enhances credibility – it also minimises the risk of audits or disputes.
Offer proactive planning and advisory services
Don’t limit your role to merely assisting with R&D tax credit claims retrospectively. Position yourself as a strategic partner by offering proactive planning and advisory services. You can start by initiating discussions with clients early in the R&D process to identify potential tax-saving opportunities, and ways to optimise their project structures and mitigate compliance risks. This has the potential to add significant value to your clients’ businesses, while strengthening long-term relationships.
Leverage technology solutions
Digital resources will come in handy to streamline your R&D tax advisory processes and enhance efficiency. There are software solutions on the market specifically designed for R&D tax credit management, which can automate data collection, analysis, and reporting tasks. These tools not only improve accuracy and consistency, but also free up valuable time for accountants to focus on higher-value advisory activities. Additionally, digital platforms have a secondary function for client collaboration and communication, facilitating seamless exchange of information and feedback.
Invest in continuous professional development
The field of R&D taxation is dynamic, with evolving methodologies, interpretations, and best practices. Invest in continuous professional development to sharpen your skills, expand your knowledge base, and stay abreast of emerging trends in the industry so that you can give clients the best up-to-date advice. You should also consider attending relevant training programmes, pursue the necessary professional certifications, and engage in peer learning opportunities to enhance your expertise and credibility as an R&D tax advisor.