Seven common reasons why companies do not claim R&D Tax Credits
Published statistics indicate that around 90% of eligible companies do Not claim R&D Tax credits from HMRC. This means that the majority of companies are missing out on claiming back tens, or even hundreds, of thousands of pounds every year. At first glance this might seem shocking however, here are Seven Reasons why companies miss out on claiming or substantially under claim what they are due:
1. Never Heard of R&D Tax Credits
R&D Tax Credits are not heavily promoted by HMRC, although many claims companies are trying to get the message across. The reality is that many SME’s, start-ups and even established companies, particularly in ‘non-perceived technical areas’, simply haven’t heard about the HMRC scheme. It has not been widely communicated in an understandable way for it to ‘light that spark’ in the minds of the would-be claimants.
2. Companies think that they do Not do ‘R&D’
The common perception of ‘R&D’ is of people in white coats in laboratories or highly technical businesses, carrying out some sort of research activity. This is Not the meaning and scope under the HMRC R&D Tax Credits scheme. Whilst the scheme does cover these areas, the vast majority of claims and applicability is related to some form of technical development. The scope is huge and covers all sectors and a wide range of activities, come of which occur in most businesses. There is more information below in a link to another article.
3. People do not understand what qualifies
If a company is carrying out any form of development with a technical element then it may well be applicable. Examples would include developing a new product or recipes, market research and client / consumer testing, developing a prototype, inhouse or externally paid bespoke software development, improving an existing production line or process and much more. Again this applies as much to Healthcare and Care Homes, Agriculture and Food Production, Construction and Logistics, as it does to Software, Aerospace, Fintech, Biosciences and Pharmaceuticals.
4. People think that the process is too complicated and too much work
Like most things, it is not complicated if you know how it works and have the experience and expertise. Trying to do it yourself means a lot of learning, risk of getting it wrong and failing with the submission, and a lot of time and effort. Working with an expert
company who has the team and experience means that you could only do 10% of the work and are guided through the process and they make the submission for you.
5. Companies and owners think that it may be too expensive and uncertain of success
Many companies and accountants will ask for upfront fees and will not guarantee success and often their submissions will severely fall short of the maximum that can be claimed. Further, many will expect the client to do most of the work and, worse still, some use software to help prepare the applications which removes the ‘expertise element’. The best route forward is to use a ‘Specialist R&D Tax Credits’ company, and one that that ‘puts its money where its mouth is’ by only getting paid based on a successful submission and money back from HMRC.
6. Using an Internal Finance Department
Unless you are a large Corporate who has a specialist internal tax team focussed on areas like R&D Tax credits you are likely to be seriously under claiming if you use your internal finance department. That is in no way a slight on finance departments, rather it is an issue about areas of expertise. Internal finance departments main focus is corporation tax, Paye, VAT and similar. They also deal with Capital Expenditure. Few understand R&D Tax credits and fewer still deal with them in an expert way on a regular basis. We often come across companies that think that R&D Tax credits do not apply to any of their activities when they actually do.
7. Using External Accountants
There are a wide range of accountancy firms in existence in the UK and the vast majority do not deal with R&D Tax credits and have no real understanding of how they apply. Most will not have ever brought up the issue of R&D Tax credits to their clients. Therefore this is an area where a large proportion of businesses are missing out on eligible claims. There is no point in going to your accountant to help you if they have never even mentioned it to you ! The reality is that you need a mix of expertise from engineers and sometimes scientists, to projects people, accountants and R&D tax exerts to work out which projects or processes in your business are eligible, put together a cohesive submission, and send it to HMRC with a high degree of success and maximised claim.
