In the end, though, we think of the idea of an online R&D tax calculator as something that’s not just unhelpful – it’s potentially extremely harmful. Having played around with others’ efforts at creating R&D calculators, to say that the scope for error is considerable is an understatement. For example, a calculator just informed me that I don’t qualify for R&D tax relief because my R&D project does not have a clearly defined end date, which is utter nonsense. An R&D specialist could tell you this in secondss, if you’d believed the calculator you’d wrongly think you wouldn’t qualify.
Despite our significant reservations, efforts have been made to produce R&D tax relief calculators of varying quality, most frequently from lead generation companies aiming to excite people about the potential benefit. Here are a few of the main reasons we don’t offer an online R&D tax relief calculator to our prospective clients:
They’re often very impressive, but we just don’t think that we can trust them enough for something that could directly impact your company’s financial decisions.
4. R&D Calculators Become Too Complex Very Quickly
The number of factors that affect how much, if any, R&D tax relief you qualify for is large, especially given common complications such as subcontracting, grant funding conflicts, and working out which scheme is most advantageous.
That’s not necessarily a problem, and you could probably work your way through all the permutations if you had the time. The problem is that any R&D tax calculator we could make that could give you a reasonable, reliable estimate would have to consider all of the same factors we ourselves consider when assessing a claim.
This isn’t just a matter of technical knowledge, but also involves interpreting the guidelines correctly as they apply to your specific situation. Forgetting or omitting a single factor could render the entire exercise pointless. It’s incredibly common that we speak with businesses that have read the HMRC guidance, to have misunderstood a fundamental element of it, convincing themselves that they won’t qualify for R&D relief.
A calculator succeeds or fails based on how far it can simplify mathematical operations for those who don’t already know the answer. Based on these criteria, an R&D tax calculator completely fails.
3. Even The Most Complex R&D Calculator Is Too Simplistic
The process of applying for research and development tax relief has a large component to it that is more like applying for funding or for a patent than it is like general tax accounting.
Numbers and true-or-false answers can tell you only so much. To write a perfect online R&D tax calculator, we’d need you to write us what practically amounts to a concise technical report, then search it for the keywords and keyphrases that both ourselves and HMRC will be looking for, then attempt to make sure that those keyphrases aren’t ambiguous or misleading.
If we could actually eliminate false positives from these results, we’d be eligible for some extra R&D tax credits ourselves, to say nothing of lucrative contracts with the US Secret Service. Even if we could do this, we’d have to cross-reference it with all the information you painstakingly entered from a technical point of view.
With R&D tax relief, you have to ensure that both numbers and narrative match up and support each other. Being able to analyse the narrative you submit along with your tax is way beyond the remit of any calculator, and simply submitting the numbers doesn’t give a good enough idea of your chances of success.
You need both, and an online calculator obviously can’t support that.
HMRC themselves once attempted to provide a R&D Tax Relief Calculator, or to be more accurate they provided 63 separate calculation spreadsheets, to take into account the different rates available to SMEs across all pertinent accounting periods. With the 63 calculators produced (which are no longer accurate with the current rates available under the scheme) it was still only possible to cover 4 years worth of relevant accounting periods, and since 2011 when the calculators were last updated, additional layers of complexity have been added which make these existing calculators all but useless.
Even with 60+ calculators, no effort was made to calculate the level of relief available to large companies, presumably accepting the additional level of detail required would create a bafflingly complex process which would be nigh on impossible to follow accurately. The changes introduced to the scheme in 2012 were, it would seem, the straw that broke the camels back, and HMRC have not made any efforts to produce any online R&D tax relief calculators since – it would seem the process simply became too laborious and open to error.
2. It Tells You Nothing You Don’t Already Know
If you’re entering the figures into a calculator, then you already know – or already think you know – what counts as R&D in your organisation. It’s common that one of the first questions an R&D Tax Relief calculator will ask is how much you spend on R&D, but if you are able to answer this question, and know exactly which costs can qualify, then the calculator would seem to be wholly pointless.
This means that the only operation the calculator provides is a simple multiplication by the appropriate percentage, typically somewhere between 24.75% and 32.63%. Increasingly lead generation companies seem to be touting the figure of 46%, presumably on the basis that the company was not aware that the R&D costs incurred were deductible.
If you already know your research and development expenditure, then that’s great, but it makes the calculator redundant.
If you don’t already know your research and development tax figures, or there’s a subtle mistake you’ve made in analysing your R&D activities, you’ll receive a fairly random figure. If that figure plays into any decision you make, it introduces uncertainty and error into your decision-making process.
Essentially, a calculator can never address misapprehensions, and it can never identify missed opportunities. An online calculator will typically indicate that between 24.75% and 32.63% of the expenditure that you identify as qualifying can be recovered, but this rarely gives a true picture in most instances – and relies on the individual correctly identifying all of the costs that can successfully be recovered under the scheme. We think that an R&D tax calculator has the potential to do more harm than good, by reinforcing misapprehensions instead of taking the opportunity to start a proper conversation, and arriving at a firm conclusion.
One of the R&D Tax Relief calculators we looked at for example, stipulated that no capitalised software costs could be included within a claim, a fact that is not only incorrect, but could also be hugely costly for any business that reads this information and believes it to be accurate. Inaccurate misinformation such as this is just one of the reasons that these poorly thought out R&D tax relief calculators simply cannot be relied upon, and a specialist should know better than to include such a misleading piece of information on their website in the first place.
1. We Like To Talk!
We love to talk to innovative clients of all backgrounds about their research and development. We get really excited by the work our clients do for its own sake, as well as for the opportunities it provides us.
A conversation of even the most informal kind has several advantages over a simple R&D calculation, and as R&D tax specialists we’re well equipped to use the advantages these conversations create.
During a conversation, we can identify those opportunities that you’ve not even considered. We can discuss your company from the top down, and factor in business arrangements that you never realised affect your research and development tax relief status. Each week we speak with people who’ve been wrongly advised that they can’t qualify for R&D tax relief, and we have no desire to add to this wealth of misinformation already out there.
Having an understanding of both the innermost complexities of your business and industry and of the research and development tax relief process is essential to getting a good result. A quick chat in a professional but friendly environment is the perfect way to get an overall image of what needs to be done, for both sides, while an on-going conversation is the best way to refine that picture and make it more accurate.
If our clients were able to easily identify what an “advance in overall knowledge or capability in a field of science or technology” actually looked like, then our job would be an awful lot simpler. The simple fact is that identifying this advance requires a lot of skill, and most importantly understanding exactly what a business does. Explaining and assessing exactly what can be included in this rather broad definition is where we add value. It’s common that a potential client will identify what they feel is qualifying activity, only to discover this work is not covered by the HMRC guidance, but other areas of the work they carry out ARE able to be included within a claim.
Our Version Of An R&D Tax Calculator
Research and development tax is not the kind of thing that can be addressed in a single spreadsheet or with a few simple percentages. The scheme depends on so many additional concepts and rules defined and interpreted by HMRC that finding failed attempts is quite straightforward.
Our version of an R&D tax calculator is a tailored, in-depth service – backed up with more decades of collective experience than any of us care to remember. We feel this is the only way we can deliver a truly tailored service for our clients.
If you’re interested in seeing how much R&D tax relief you do qualify for, call us on 0117 926 9022 for a conversation without obligation.