In an informal conversation, we can all explain what our work involves. In fact, it’s a staple of small talk that allows us to fill car journeys or those empty minutes while we wait for everyone to join a video call.
Pressure, however, tends to tie our tongues into knots. Words and ideas that we’re normally able to speak about easily become difficult to explain clearly. For many competent professionals, dealing with an HMRC inspector can be just such an occasion.
“As tax professionals, there’s no stigma attached to HMRC for us,” explains Allison Walker, a director at the specialist tax adviser Freestone Jacobs. “For many clients, however, that brown HMRC envelope coming through the door can cause a lot of uncertainty.”
Referring clients with confidence
Allison first met ForrestBrown’s technical director Jenny Tragner at an MGI Worldwide event. MGI is a global accounting network of professional audit, tax advisory and accounting firms.
According to Allison, membership of MGI offers two big benefits. Firstly, the network is a great referral source for Freestone Jacobs. As a specialist adviser, the firm is frequently called in by other firms to help on specific, technical tax questions.
Similarly, the alliance is a valuable professional directory for Freestone Jacobs. “Our connections at MGI enable me to recommend other firms and people with confidence,” Allison explains. That’s why when two Freestone Jacobs clients faced HMRC enquiries into their R&D tax relief claims – coincidentally at the same time – she turned to her fellow MGI member ForrestBrown for assistance.
Preparing for an HMRC interview
When Allison approached ForrestBrown, two software clients found themselves struggling to communicate the technical aspects of their work during an HMRC enquiry. For the clients’ software experts, the process of explaining their work and the technical complexities of this was proving quite difficult. This is understandable: for non-tax professionals, dealing with the tax authority can be nerve-wracking.
“When we met with the competent professionals, they’re comfortable and happy to talk about their work. However, when HMRC was introduced to the equation, it became a very different scenario.”
Both enquiries focused on whether the work being done met the criteria of R&D for tax purposes. This type of enquiry places a lot of pressure on the competent professionals involved in the projects. Indeed, in one of the enquiries, a particularly difficult call with the HMRC inspector threatened to derail the company’s R&D tax relief claim entirely.
ForrestBrown was called in to help the technical staff refine their approach to HMRC. Our sector experts ensured that the competent professionals understood what it is HMRC wanted to know from them.
This help, Allison says, was invaluable. “The competent professionals were worried about saying the wrong thing. They’re not the business owner in many cases, so there’s a lot of pressure to speak accurately.”
In both cases, the companies had carried out qualifying R&D, however, they were surprised by the detailed and challenging nature of the questions asked by HMRC. We were able to provide support in the form of industry-experienced sector specialists, who could discuss the technicalities of the projects with them peer-to-peer. But we also provided the benefit of our experience and insight into HMRC’s approach to R&D enquiries. Both factors contributed to achieving a successful resolution in these cases.Jenny Tragner CA ATT, ForrestBrown’s technical director
ForrestBrown helped the competent professionals prepare for meetings with HMRC and supported them in drafting technical project descriptions that accurately reflected their projects. This work led to constructive conversations that offered the tax authority what it required. Both enquiries, Allison reports, concluded successfully.
R&D tax relief partner
After the enquiries closed, Allison decided to keep working with ForrestBrown on future claims. “One of the clients who had faced enquiry were doing another claim this year, so we decided to prepare this claim in partnership with ForrestBrown.”
Freestone Jacobs understood the importance of obtaining and covering the technical aspects of the client’s R&D work in an effective way and, as a firm that prioritises client service, it made sense to offer this client the right mix of expertise by partnering with ForrestBrown.
“We’re working with ForrestBrown to support the business in identifying the projects that qualify, particularly in identifying project boundaries accurately, and we’re taking care of the tax side of things,” Allison explains, “the idea is that by bringing ForrestBrown in early, we can reduce the risk of an HMRC enquiry altogether”.
ForrestBrown thinks: How to reduce the risk of HMRC enquiry
It helps to see an HMRC enquiry into an R&D tax relief claim as not just about the numbers. It can absolutely be that, of course, but as in the case of Freestone Jacobs’ two clients, R&D enquiries almost always include, and can often really focus on, the question of what is and is not R&D.
HMRC officers aren’t software or engineering experts, and for technical staff who are nervous or under pressure, explaining clearly why their work qualifies for tax relief can be daunting. When communication between the business and the HMRC inspector breaks down, the chance of an amicable resolution, unsurprisingly, diminishes.
When ForrestBrown was brought in the two aforementioned cases, we used our in-house sector muscle to help the competent professionals explain their work in a way that helped HMRC to understand why it met the R&D tax criteria.
While we can be called in after an enquiry has been opened – and we’re frequently called on to help in these cases – a better approach is to identify and deal with risks proactively.
The risk of enquiry cannot be entirely eliminated. But certainly, the risk of HMRC enquiries (and making costly errors) can be substantially mitigated with the right know-how. A big part of this is the right tax expertise, but as our work with Freestone Jacobs illustrates, this isn’t the only factor.
Read our article – how to avoid an R&D tax credit enquiry ps. you can’t – for more information.
ForrestBrown is frequently called in to consult on R&D tax relief claims by accountants looking for additional assurance on the technical and scientific aspects of a client’s R&D claim. Businesses who claim R&D tax relief are often carrying out advanced and complex work.
As such, facilitating communication between competent professionals and HMRC can be tricky. ForrestBrown’s sector specialists provide crucial technical expertise and experience of the definition of R&D for tax purposes, including valuable insight into how HMRC approach enquiries into R&D claims. Your clients can communicate comfortably, and we’ll work with you and HMRC to make sure things run smoothly.