Should You Prepare Your R&D Tax Credit Claim In-House?

Preparing an R&D Tax Credit claim in-house can seem like a straightforward way to reduce costs and avoid advisor fees.

However, R&D Tax Credit claims have become considerably more complex in recent years. Changes to the legislation, HMRC guidance and administrative requirements, combined with increased scrutiny of claims, mean that businesses should carefully consider the risks involved before deciding to manage the process internally.

We interviewed R&D Tax Credit industry commentator and RCK advisor and brand ambassador, Rufus Meakin, to find out what companies should consider before preparing an R&D Tax Credit claim in-house.

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1. R&D Tax Credit claims have become considerably more complex

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The legislation, HMRC guidance and administrative requirements have changed significantly over the last few years. HMRC has also substantially increased its scrutiny of claims, while introducing new requirements such as the Additional Information Form (AIF), claim notification and its Guidelines for Compliance (GfC3).

This is particularly relevant where a business used a specialist advisor several years ago but has since brought its claims in-house whilst continuing to use the same methodology or template.

Reusing an R&D claim process or template from several years ago is a significant risk. The rules, filing requirements and HMRC's approach to compliance have changed substantially, meaning an approach that was acceptable then will be inadequate today.

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2.R&D Tax Credit expertise is difficult to replicate in-house

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A company preparing its claim in-house will typically prepare just one R&D claim each year: its own.

By contrast, a specialist R&D advisor will work on claims across numerous businesses, technologies and circumstances, giving them far greater exposure to the nuances of the legislation, HMRC guidance and current compliance activity.

A specialist advisor will also quickly spot issues and opportunities that a company preparing one claim a year would be unlikely to know about.

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3. Administrative errors can invalidate a claim

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The recent introduction of claim notification and the Additional Information Form has created additional requirements and deadlines for claimants.

The interaction between these requirements, accounting periods and previous claims can be complicated. Missing a required notification or filing requirement can potentially mean that an otherwise qualifying R&D claim cannot be made at all.

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4.HMRC compliance checks require specialist experience

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Preparing an R&D claim in-house carries significantly greater risk if HMRC subsequently opens a compliance check.

HMRC may challenge the qualifying R&D, the expenditure included in the claim or both. Responding effectively requires a detailed understanding of the R&D legislation and guidance, but also practical experience of how HMRC conducts compliance checks, the questions it asks and the evidence it expects to see.

A company that prepares one R&D claim a year is unlikely to have any experience of dealing with an HMRC compliance check. An experienced R&D advisor will have handled numerous compliance checks and will understand how HMRC approaches them, the questions it is likely to ask and how best to respond.

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5. Preparing a claim in-house can result in significant underclaiming

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Businesses preparing their own claims can be excessively cautious about what they include.

This can result in legitimate qualifying expenditure being overlooked, particularly where the rules around staffing costs, subcontractors, externally provided workers, software, data, cloud computing and qualifying indirect activities are not fully understood.

Saving money on professional fees can quickly become a false economy if the claim is significantly lower than it should be.

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6. Preparing a claim in-house takes up valuable management time

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We regularly speak to CTOs and technical directors who have spent two or three days preparing their company's R&D technical report themselves.

Using an experienced advisor should reduce that considerably.

At RCK Partners, we would typically expect to need two or three hours of a CTO or technical director's time to obtain the information we need, rather than asking them to spend several days preparing the report themselves.

That time can then be spent running the business rather than preparing an R&D Tax Credit claim.

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For all these reasons, preparing an R&D claim in-house can be a false economy.

You may save on advisor fees, but that needs to be weighed against the risk of underclaiming, getting something wrong, the time involved and having to deal with HMRC yourself if the claim is challenged.

If you're considering preparing your next claim in-house, we'd be happy to discuss how RCK could help reduce these risks, while making sure you claim everything you're eligible for.

Get in touch here.

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^{About the author}

Rufus Meakin is Senior Advisor and Brand Ambassador at RCK Partners. He has worked in R&D incentives and the wider innovation funding market for 25 years and regularly writes on R&D tax relief, innovation policy and HMRC compliance.

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