Whether your business is considering R&D tax credits for the first time, or you’ve already engaged an agent and you’re planning your next R&D claim, here are five things you should always check in an agreement for R&D tax credit advice:
1. Scope of work – What’s the full scope?
2. Fee calculation – how is the fee for R&D tax credit advice calculated?
3. Contract term – is it a multi-year R&D tax credit contract?
4. Corporation Tax return – Who handles the Corporation Tax return?
5. R&D enquiry support – what does your contract say about HMRC enquiry support?
We make these recommendations to you a bit like a lighthouse warns vessels away from danger. Both because it’s our job and it’s the right thing to do.
1. Scope of work – What’s the full scope?
What to look for
Does the agreement make clear what’s included in the scope of work? You may think all R&D tax agents are doing the same thing. But all R&D claims are not created equal. Make sure you know what level of service your adviser will provide, how much support you will get and what is expected of you.
What’s the risk?
Many advisers limit their time commitment by taking more of yours. Use caution if the agreement asks you to:
- Fill in spreadsheets or templates to provide financial information,
- Identify your own R&D projects,
- Write detailed project narratives.
Here’s an example of what happens when information gathering is done badly:
One R&D tax agent submitted a claim using only the company’s accounts and website. They didn’t share their report with the client, just filed it directly with HMRC. When HMRC raised an enquiry, the agent withdrew the claim (falsely citing problems with funding from Brussels) which left their client facing potential penalties for errors in an R&D claim they had never seen.
How ForrestBrown does it
To translate technical information from your sector, it takes more than tax and accounting experts. It takes highly qualified, industry-hardened technical experts. Scientists, engineers and technologists. We have a team of them – we call them sector specialists. The sector specialists always prefer to collect your supporting technical information via interviews with your competent professional. This is much more likely to ensure all of the potential projects have been discussed, or otherwise ruled out, and that the right information is gathered for the claim documents.
Once our sector specialists have helped you to identify all of your R&D projects, our chartered tax advisers review ALL expenditure in your business. We start by reviewing your accounts and understanding what records are available, which is often unique to your business. We work with those records to calculate R&D expenditure, which means the information should be readily available and we don’t rely on you filling out lengthy spreadsheets to provide us with what we need. We clearly explain to you our methodology, including any assumptions or risks. This approach minimises your time commitment and helps us improve your claim.
2. Fee calculation – how is the fee for R&D tax credit advice calculated?
What to look for
If you are engaging on a success fee basis, it’s important to check how the fee is calculated and when it’s payable. These factors will enable you to make an informed decision about who to engage. Beware agents who refer (often in small print) to an ‘expected’ or ‘average’ benefit.
What’s the risk?
In some cases, the fee is a percentage of the qualifying expenditure rather than of the benefit itself. It may appear to be a lower amount but it’s a sleight of hand. It’s often equivalent or even more expensive than a higher percentage that’s based on the benefit. You could also end up paying for a service before you have received the benefit.
How ForrestBrown does it
At ForrestBrown, our fee is calculated based on the final benefit you receive from HMRC. Our involvement doesn’t stop at submission, we stay in contact with you, and your accountant and HMRC if necessary, to ensure you receive the right amount. We can do this because we are chartered tax advisers, which means we understand your wider tax position, and this helps us both to maximise your benefit and ensure that you receive the correct amount as quickly as possible.
R&D tax credit fees explained
Read more about R&D tax credit fees and why cheapest is rarely the best option for your business.
3. Contract term – is it a multi-year R&D tax credit contract?
What to look for
Before you sign any paperwork, check the term you are signing up for and your rights to terminate. Hopefully all will go well, but if it doesn’t, what happens then? Look out for penalties for early termination. You may not be able to judge whether a fee agreement is value for money until after the work has been done, so consider whether you are comfortable committing to fees for several years.
What’s the risk?
Long-term, legally binding tie-ins that commit you to two-, three-, five- or even 10-year agreements leave you little or no scope to renegotiate fees or flex the scope of work. They also leave you with little protection if your relationship with your adviser breaks down. What if something changes in your business which makes that contract unsuitable?
Termination clauses in longer-term agreements can be particularly harsh, with some contracts renewing automatically unless actively terminated by the company by a given date. You may have to pay a termination charge to escape.
A company ended up paying for their R&D claim preparation twice because they missed a strategic lock-in clause in their previous agent’s contract. After submitting a claim with the first agent, they were dissatisfied with the service so switched to a new R&D adviser who prepared and submitted a claim. Then the company discovered that the previous agent was still entitled to charge a fee because of the lock-in clause.
How ForrestBrown does it
When you work with ForrestBrown, we only want to you to return because you want to. There is no lock in, our engagement only rolls forward to subsequent accounting periods if you are happy for it to. We’ll be in touch between claim cycles and if you want to flex the scope of work you can. We’re always reviewing our processes and this applies to your claim too; if we can improve our approach we will. Our terms of business are clear, simple and transparent, we’ve worked hard to make them so. If you do choose to come back to us for your next R&D tax credit claim, then we’ll know it’s because we’ve done our job well. That’s what makes us tick.
4. Corporation Tax return – Who handles the Corporation Tax return?
What to look for
Submission of your claim is such an important step in the process, make sure you know how this will work. In particular, who does what between you, your accountant and your R&D tax adviser. You’ll want this to work smoothly, ideally with maximum collaboration between your accountant and adviser. HMRC actively prefer online submissions – so ensuring this happens is a no-brainer – and it’s essential that they have all the information they need to process your claim, so make sure you know what documents will be submitted, by whom, when and how.
What’s the risk?
Sometimes you can be left arranging submission of your claim. This usually means your accountant has to file the amended return with the R&D figures included. HMRC requires all R&D claims to be accompanied by a full amended Corporation Tax return, including tax computation showing correctly how the claim has been calculated. R&D tax agents who leave it to you or your accountant to prepare this tax return may miss things (such as loss relief claims) that impact the claim benefit. If your accountant isn’t expecting this extra work, they may want to charge you for their time.
How ForrestBrown does it
It’s always up to you. Once you approve your claim, we can file online directly with HMRC (with your permission) as a seamless part of the R&D tax credit claim process. Or we’ll happily work with your accountant if that’s what you prefer. In each case, we work transparently to ensure the claim is filed accurately with minimal disruption and you receive the correct benefit.
5. R&D enquiry support – what does your contract say about HMRC enquiry support?
What to look out for
Recent developments in R&D tax credits mean that HMRC enquiries are becoming more common.
Look very carefully at any clauses which restrict the support you will receive from your R&D adviser in in the event of an enquiry. Some R&D tax agent contracts will include clauses that allow them to:
- Charge additional fees,
- Exclude any enquiry support,
- Limit their unpaid enquiry involvement.
The amount of time and resource needed to resolve an enquiry is extremely difficult to predict, so enquiry support is an expensive service to include at no extra charge. Those advisers who do include it as standard do so because they are willing to back their work.
What’s the risk?
An HMRC enquiry into your R&D tax credit claim can be lengthy and time consuming.
It is still true that in most cases claims will be processed without challenge, but if you are a regular R&D tax relief claimant, it’s likely that HMRC will ask you further questions at some point, just to check they are happy with your claim methodology. It is important to know that just because a previous claim has been paid to you without challenge by HMRC doesn’t mean they have reviewed and approved it. Under self-assessment, HMRC only review a proportion of claims, and they do have powers to unpick years of claims if they find something wrong further down the line.
Support from an experienced adviser is essential to mitigate the impact on time, value and relationship with HMRC.
An R&D tax agent was discourteous and unprofessional with HMRC, resulting in them rejecting the company’s claim in full. ForrestBrown stepped in to resolve the enquiry and quickly found that the agent had made basic errors in the claim calculation. We corrected the claim, liaised with HMRC, and were able to successfully resolve the enquiry with no penalties. We also helped the company to prepare another claim for a subsequent period which offset the repayment due as a result of the errors.
How ForrestBrown does it
Without exception, where you engage ForrestBrown to prepare your R&D claim, our full R&D tax credit enquiry support service is at your disposal and included in the fee. This gives you direct support from our most experienced professionals: chartered tax advisers and accountants, tax lawyers, sector specialists and ex-HMRC inspectors.
