It covers things such as:

• Qualifying conditions
• Eligible costs
• Differences between the SME Scheme and RDEC
• How to treat R&D expenditure covered by a grant or a subsidy
• How despite Brexit, EU rules are still applied to the definition of an SME and the amount of repayable tax credits that can be paid

You can do it yourself

You can take the chance, you might get lucky, HMRC are stretched when it comes to reviewing R&D Tax Relief claims, you might get lucky for three or four years, but then HMRC might look at a claim, it looks slightly higher than what they have come to expect. They open an enquiry into your last claim, they ask you a number of questions about how you determined that the work you were undertaking represented a global advance in science or technology. The explanation you provide doesn’t quite convince them, they think that you are just improving your own knowledge and capability, they decide as a result to open an enquiry into all of the other claims you have filed for exactly the same reason, the £150,000 that you have claimed and spent over the last four years, suddenly needs to be repaid, you don’t have it!

Am I scaring you? It’s not completely unintentional, but it could happen. However, worse still is it could still happen even if you have employed an R&D Tax Relief Consultant. Not all companies purporting to be R&D Tax Credit Experts will continue to support you in the event of an enquiry, some will work on a fixed fee and then leave you to pick up the pieces or pay a lot more to them to support you with an enquiry. It’s not all of them, but there are some!

We won’t leave you in the lurch

Our “No Claim, No Fee” promise means that we don’t get paid if your claim is unsuccessful, it also means that we will defend your claim through an enquiry with HM Revenue and Customs, if that claim is retrospective and after you have received a refund, we will reduce our fee if the enquiry reduces the value of the claim. To date we have claimed around £20m for companies of all shapes and sizes, our largest claim has been over £1m our smallest about £2,000, in the 8 years the company has been operating our claims have been enquired into 6 times, we have defended them all successfully and more than 99% of the costs that we have claimed have been accepted. In fact our first ever piece of work was to help a company with an ongoing enquiry to successfully close it by examining the corporate structure and during the enquiry we noticed that the company hadn’t claimed for subcontractor costs in their claim, which enhanced it by a further £30,000.

If you work with the right Tax Consultant your risks are greatly reduced, it is absolutely not risk free, but the risks are shared, but the knowledge and expertise that you gain, may not only increase the value of your claims, but it may also give you additional piece of mind.

To start your R&D Tax Credit journey with an R&D expert, you can book a free, no obligation discovery call at 01424 225345.

The post Why do you need a R&D Tax Consultant? appeared first on Cooden Tax Consulting.

Let’s kick things off with some background!

Sub/Sub is HMRC taking a two-pronged attack on an R&D claim against a company claiming for R&D that has arisen as a direct result of trying to deliver a project which requires R&D to complete it and is subject to a contract. The two “Subs” are:

Subsidised – a subsidy is often a grant, whether that be from a quasi-government organization like Innovate UK, a council or a foundation. However, sometimes it is also just be a sum of money that is awarded/gifted to a specific organization sometimes to support the R&D and sometimes just to support the overall operation of the business, in both cases, if it subsidises the cost of all or part of the R&D costs that a company has incurred, then the company should claim those subsidised costs as a Research and Development Expenditure Credit (RDEC) and not claim for enhanced expenditure under the SME scheme.

Subcontracted – subcontracted’s generally interpretation is one company asking another company to do a very specific thing. Consider clinical research, big Pharma and Biotechnology companies “subcontracted” their Clinical Trials to specialist Clinical Research Organisations, as they had the scale and the knowledge that was lacking in Pharmaceutical companies whose main aim was to develop compounds and then market those compounds that were proven to be successful and safe in clinical trials. Normally it would be performed on a time and materials basis and the subcontractor would be paid for their efforts regardless of success. R&D subcontracted by a Large Company to an SME should be claimed using RDEC, not the SME Scheme and if a company was genuinely subcontracted to by an SME, then the SME would claim rather than the contractor.

The start of this sorry story

Approximately 3 years ago HMRC quietly changed their guidance at CIRD84250, no-one outside of HMRC knows when, only that when The Wayback Machine checked the page on 20^th April 2021 it had the old description and when it next visited the page on 30^th November it had changed.

The key changes were the addition of this sentence:

“Any activities carried out in order to fulfil the terms of a contract are considered to have been contracted to the company.”

And the removal of this one:

“As part of any examination it may be useful to examine the degree of autonomy enjoyed by the person engaged, the ownership of intellectual property, and the economic risk in any arrangements.”

They also amended the guidance on subsidised R&D at CIRD81650 adding a significant chunk of new text starting with this paragraph

“The legislation separately provides that expenditure is also subsidised to the extent that it has been met, directly or indirectly by any other person. So expenditure may be “subsidised expenditure” even though the payments are not, for example, a grant or subsidy paid by a public body.”

Further into the additional verbiage under the statement “What is considered to be a “clear and direct link” will depend on the facts in each case.” Is this kicker

“ • Payment received for undertaking a contract will be considered to meet expenditure incurred in undertaking that contract.”

And in an instant the world of R&D Tax Relief for SME claims was turned on its head! These updates were made on the QT, they were not referenced in the change logs, whether HMRC thought that the R&D Advisor Community had simply forgotten what was in the original narratives and would suffer from collective amnaesia who knows. The Stage One Creative Tribunal hearing notes confirm that this change did actually take place on 30^th November 2021.

In another twist all of the tribunal cases that I reference below all had enquiries that were opened to test HMRC’s revised interpretations before they updated their own guidelines for those revised interpretations. Talk about putting the Cart before the Horse.

Reasoning for the change

To be fair to HMRC their logic was sound, to prevent both parties to a contract from claiming for R&D Tax Relief on the same costs. I don’t know whether there is actually any evidence of some R&D advisors working with both parties to a contract and submitting the same claim for both the contractor and the subcontractor, but we got the feeling that this was implied at one of the subsequent meetings of the R&D Consultative Forum that this had been the case. And indeed I believe this is specifically referenced in one of the rulings below.

Given what we have learnt about some advisors’ ethics and behaviour in the last 4 or 5 years that has come out over the last 6 to 9 months, it wouldn’t be a surprise for most of us in the R&D Advisory Community for this to have actually happened.

Our Knee Jerk Reaction – Mirrored by a majority of advisors

In a case of Turkey’s voting for Christmas (or perhaps Thanksgiving to keep up with the Americanisms and the timing of this article), to the detriment of some of our clients and our own income, we decided to toe the line and follow the revised guidance for fear of receiving one of those dreaded brown envelopes containing a “Notice of Enquiry” letter from HMRC. Hastening to add here that we took these decisions in collaboration with our clients and explained our reasons why we thought it was mutually beneficial and they have agreed with us almost in their entirety.

Our client base is one where the value of claims is not stratospheric and whilst only getting back 10.53% of eligible spend instead of 24.7% or 33.35% was disappointing it was often a matter of maybe £30,000 at most in the value of a claim.

Let Battle Commence

Fortunately, there have been some advisors and some companies who have been braver and have taken on HMRC and their revised interpretation of Subcontracted R&D, to be fair they had a lot more to lose.  To date the three companies that have taken on HMRC have been in “construction” related industries and each have had more than a million pounds at stake in their SME scheme claim. So taking HMRC to the First Tier Tax Tribunal (FTT) had significant financial upsides.

Quinn (London) won the first skirmish

First under the microscope was Quinn (London). HMRC only sought to disqualify their SME claim because their costs had been indirectly subsidised by the other parties to the contracts on the refurbishment of various listed buildings. HMRC argued that even though it was after the fact, the customer paying the invoices for work completed was in essence subsidising, albeit indirectly, the R&D that was being performed. Forrest Brown were the R&D advisors defending the claim and supported at Tribunal by Laurent Sykes QC of Stewarts Law.

HMRC lost, Judge Harriet Morgan in her ruling stated ““it would be wholly out of kilter with the overall SME scheme if an SME were to be denied enhanced R&D relief solely because, as is usual and to be expected of an entity carrying out a trade on a commercial basis, it seeks to recover some or all of the relevant costs of the R&D under it its commercial contracts with its clients entered into in the course of its ordinary trading activities. Indeed, if HMRC’s approach were to be adopted, the circumstances in which an SME could claim enhanced R&D relief would seem to be confined to those where it has no prospect of exploiting the R&D for commercial gain.”

In a bizarre twist after the ruling, in a subsequent R&D Consultative Forum Meeting HMRC “discussed” the case and sensationally stated that in their opinion the tribunal had erred in their ruling and further argued, had they brought the case under their revised guidance for subcontracted R&D, they would have won the day! Despite this strength of feeling HMRC didn’t nail their position to the mast and refused to appeal the decision to the Upper Tax Tribunal (UTT) and create case law.

• to the home team!

Ironically despite HMRC’s defeat of their revised interpretation of subsidised R&D, the changes to the CIRD Guidelines, that I reference above were only implemented after this defeat in, what some might say, a case of HMRC thumbing their nose at Judge Morgan.

Collins Construction wins the first battle

As HMRC marshalled their troops and brought their revised interpretations to the front line, their sights fell on Collins Construction. Similarly in the construction space, this was the first claim going to FTT that faced the pincer approach of a rejection of the claim as both subsidised and/or subcontracted R&D. We’ll comment on this approach in our summing up.

Collins Construction was actually the second of two lead cases to be heard, there are a number of other cases with similar situations to Collins, stayed behind this ruling, and still more behind the other ruling. The Judgement was handed down on 21^st October 2024 and HMRC had 56 days to appeal the decision.

As the title of this piece suggests they lost on both fronts in para 73 of the ruling the Tribunal Judge Kim Sukul on the subcontracted argument stated “Objectively assessing the meaning which a reasonable legislature would be seeking to convey in using the words “contracted out” and “contracted out R&D”, we do not consider the broad interpretation suggested by HMRC to be appropriate. We consider the natural meaning of the words used in the provisions excludes the relief in circumstances where the qualifying expenditure is on research and development activities, when those activities are carried out on behalf of another person.” Judge Sukul, also took the findings from the Quinn (London) FTT case mentioned above and despite HMRC arguing that the Tribunal in Quinn was wrong or had erred in their judgement, this tribunal agreed with the Quinn tribunal in stating that a “clear link” was necessary between the price paid and the cost of the R&D and in both cases that had not been established.

This case was initially argued by Adam Spriggs and Fiscale on the R&D side and by Edward Hellier at Tribunal

3-0 to the home team, 2 defeats on subsidised and a first on subcontracted.

Has Stage One Creative won the war?

This ruling was published online on 28^th November 2024 and like in Collins, HMRC has lost on both counts of Subsidised and Subcontracted in another First Tier Tribunal defeat. Mark Doodney, Croner-i and Clive Owen LLP argued the case up to tribunal and were supported by Charles Bradely of Pump Tax at tribunal.

The decision broadly aligns with Collins Construction but Stage One Creative are not quite so focused on construction, in the way that both Collins and Quinn (London), they are however involved in the exhibition industry.

There was one major difference between Stage One and Collins, which perhaps may have been an attempt to go down in a blaze of glory, HMRC took the step of opening discovery assessments into previous claims submitted by Stage One Creative Limited and retrospectively apply their revised guidance on subcontracted R&D on claims submitted before the guidance was even updated. This was also dismissed.

5-0 to the home team, 3 defeats on subsidised and now 2 on subcontracted.

Our reasoning and response

Stage One haven’t necessarily won the war, but it’s reasonable to assume that they may have breached the dam and we expect there will now be a flood of claims from companies who either withheld submissions or companies who may have followed the revised guidance and feel the time is now right to amend their claim to an SME scheme claim.

It would appear that HMRC have twisted themselves in knots in trying to create and enforce these peculiar interpretations of the tax law. It would seem incoherent to argue that it is subsidised and if it isn’t subsidised, it must be subcontracted, surely their argument would be stronger if they argued it was one or the other. Particularly because in both the original and the revised version CIRD84250 HMRC themselves state “Where a company carries out R&D on its own account and simply receives a subsidy from another entity, this is not subcontracting – it is subsidised expenditure.” So, they should know the difference!

The conspiracy theorists in the office wonder whether HMRC have been acting as proxies for HM Treasury and have created these interpretations to discredit the SME scheme, and as this has now been removed from the tax legislation for accounting periods beginning on or after 1 April 2024, that they have already won the war and that these FTT rulings are simply hotspots within the dying embers of battle.

The SME scheme realistically met its maker after a mandatory random enquiry programme (MREP) in 2022, which followed hot on the heels of the changes to the CIRD guidelines identified significantly increased levels of error and fraud of £1.13bn in 2020-2021. The fact that HMRC have so far hidden behind arguments of the cost and the time to collate as reasons not to fully respond to Freedom of Information Requests into the specific causes of error in their MREP that led to these high levels of error, has added fuel to the conspiracy theory fire.

What next?

HMRC initially suggested that if they lost at FTT, they would proceed to the UTT, the first FTT ruled on 21^st October 2024, so HMRC had 56 days to appeal to the UTT, that means they have until 16^th December 2024 to make an appeal. If they don’t appeal, will that further fuel the conspiracy theorists?

We’ll be writing to a number of clients who haven’t submitted a claim, to discuss whether they want to begin working on claim periods that are still open, and which have similar characteristics with these three cases and suggesting that the time may be right to submit an SME scheme claim.

For those companies that either submitted an RDEC claim or didn’t submit a claim for accounting periods that are now closed there’s nothing that can be done, yet!

Historically when HMRC have policed elements of the R&D Schemes incorrectly, it happened with the reimbursement of out of pocket expenses, they have allowed companies to amend their claims that were out of time during an amnesty window. However, with no UTT ruling, it’s uncertain whether this will happen.

In another twist, the new merged scheme, which applies to accounting periods starting after 1 April 2024, has rules on R&D that has been contracted, which are very similar in effect if not in wording to the original guidance that HMRC changed in 2021. Make of that what you will.

In summary

There is a growing body of evidence that HMRC’s position on subcontracted and subsidised R&D is untenable, three devastating rulings, even if only at FTT, two of which had a large number of cases following behind them, both of which supported the original ruling on subsidised R&D in Quinn, represents a strong body of evidence.

HMRC’s decision on whether to appeal or not will be telling!

As for the conspiracy theories who knows anything is possible!

We’ll keep supporting our clients old and new and will discuss with them the risks and merits of an R&D Claim. Nothing in life is risk free and the same applies to the best presented R&D Claim in the world.

If you have a query about any R&D claim, why not reach out for a chat, you can book a meeting at a time convenient to you and we can start a conversation. If you are an accountant that doesn’t want to take the risk of supporting your clients anymore, we’d be happy to talk with you about how we can help manage the risk with you or for you.

It all starts with a conversation!

Artwork produced by Shanel Richardson,  https://linkedin.com/in/shanelrichardson , https://shandwich-artist.carrd.co

The post HMRC are now batting 0 for 5 in their Sub/Sub First Tier Tribunal cases appeared first on Cooden Tax Consulting.

If your company had a financial year end of 31 March 2024, and you haven’t claimed R&D Tax Relief before or you haven’t submitted a claim between 1^st October 2021 and 30^th September 2024, then you will need to notify HMRC of your intention to claim, by 30^th September 2024.

If you don’t your claim won’t be accepted. It’s also not a fixed deadline as it will be relevant for every month going forward so a 30th April 2024 year-end will need to pre-notify by 30th October 2024 and 31st December 2024 year-end by 30^th June 2025.

If you think you might be considering a claim, then you really need to make sure you have pre-notified HMRC by 30^th September if you are a company with a March year-end.

The rules are further complicated by disallowing a claim made on an amended tax return (a second filing) to include an R&D Claim that was submitted in the period between 1^st April 2023 and 30^th September 2024. So, if you filed an amended claim for 31^st March 2022 after 1^st April 2023 and you haven’t yet submitted your 31^st March 2023 claim or you submitted it after 1^st April 2024, you will need to pre-notify HMRC.

Confused? We were!

Whether they have complicated the rules to catch people out we don’t know, but they are complicated.

Not sure where to start? Well you can try here, but it doesn’t reference the disallowing of amended R&D Claims, so if you’re still not sure or if you don’t have access to your online tax account, why not send us an e-mail or give us a call and we can help you with that. You don’t even have to use us for your R&D claim.

We’ll have a quick chat about your projects, we’ll need a bit of information about the business, some dates and names and reference numbers and we’ll prepare and submit your notification form.

There’ll be a small fee! £350!

You may subsequently decide not to prepare a claim, or you might ask us to prepare a claim and in our more detailed look at your projects, we might say there isn’t scope for a claim as your projects don’t meet the requirements, or there isn’t sufficient cost to make it viable for either of us.

If you do go on to use our full R&D Tax Relief service, we’ll discount our final fee to remove the cost of the original notification.

That’s fair, isn’t it?

The post 30 September – Massive deadline for R&D Tax Relief Claimants appeared first on Cooden Tax Consulting.

R&D Tax Relief is a cost-based tax relief that is designed to reward companies undertaking a project that seeks an advance in science or technology through the resolution of scientific or technological uncertainty, you can read more about whether your projects qualify here.

There are now only two streams that are almost identical, with one significant difference and one largely insignificant difference to eligible expenditure. There are different qualifying criteria for each stream, and it is the qualifying criteria that create the biggest difference, and there is of course a significant difference in the financial benefits associated with each stream.

The SME Scheme is the stream for Small & Medium-sized Entities, generally, these are companies that are performing R&D for their own benefit and spending their own money. However, in some cases, they may be performing the R&D with an expected customer in mind, having identified a market need or been approached by a customer with a specific requirement, but in these circumstances, it is important to understand the contractual relationship between the SME and its customer. The work cannot be “subcontracted” to the SME, nor can it be “subsidised” by the customer. The subcontracted element would be a contractual relationship that sees the customer pay the SME for time and materials spent in developing the product. The subsidised element is one that HMRC have been pursuing recently and focusing on the commercial terms of milestone-based projects, a significant upfront payment on contract signature, might be seen as a way of subsidizing the R&D expenditure to be performed by the SME, which would then make a claim for R&D Tax Relief under the SME Scheme unviable due to the subsidy.

To qualify as a SME, the company must:

• employ less than 500 full time equivalent staff (including staff within group companies); and
• have a Turnover less than €100m; or
• have gross assets of less than €86m on the Balance Sheet

In essence a SME can be a pretty significant business. Claims under the SME scheme for a company that is in profit will generate a tax saving of up to 24.7% of the eligible expenditure, whereas a loss-making SME is able to surrender their losses for a repayable R&D Tax Credit worth up to 33.35% of their eligible expenditure.

The Research and Development Expenditure Credit stream is for businesses that don’t qualify as an SME, it also covers R&D performed by an SME for work subcontracted to it by a Large company, by an overseas entity or by an entity in the UK not chargeable to corporation tax. An SME that has also had its expenditure subsidised by either a grant, subsidy or by significant upfront payments from a customer, will be able to claim under the less rewarding RDEC stream. The tax saving under the RDEC scheme is currently 10.53% of eligible expenditure incurred after 1 April 2020, prior to that it had been worth 9.72%.

So those are the differences between the two streams, but there are still the differences between the two sets of eligible expenditure. If we look at the eligible costs for the SME Scheme, then we can discuss the one element that can’t be claimed under the RDEC stream and then the one element that can only be claimed through RDEC.

The eligible costs for the SME scheme are:

• Staff Costs – wages, salaries, bonuses, employers social security (NI) and employers pension contributions
• Subcontractors – work subcontracted out to another company on a time and materials basis;
• Externally Provided Workers – named individuals normally engaged through an agency or a connected staff provider, but not always;
• Materials – materials consumed during the research and development, including in prototypes, but only where the prototype is not intended for sale and they cannot be removed from the prototype and used in another project;
• Utilities – payments for light, heat and water, consumed in the R&D process;
• Software – both purchased and developed to support the R&D process;
• Payments to Clinical Trial Volunteers – not applicable to most claims, but perhaps very of the moment in these current times; and
• Connected Companies – payments to connected companies for all of the above costs apart from further sub-contracted costs.

Under the RDEC scheme, one additional expense that can be claimed is “Contributions to independent research.” This refers to payments made to a qualifying body to conduct research and development of their own choosing. However, it’s important to note that work subcontracted to an SME cannot be claimed under RDEC, as the SME is eligible to claim for the subcontracted work themselves.

Despite these nuances, the similarities between the two streams are greater than the differences. If you’re unsure about your eligibility or which scheme to claim under, feel free to reach out for a chat. You can book a free, no-obligation discussion with me at https://calendly.com/cooden/discovery-website to determine in 15 minutes whether your company and project qualify. Alternatively, you can call us at 01424 225345.

The post SME v RDEC: What are the differences? appeared first on Cooden Tax Consulting.

In earlier years HMRC had a network of regional areas of expertise in their R&D Units, these have pretty much been disbanded and centralized, whilst some of those remain, many have left HMRC and have gone from being the gamekeeper to the poacher, provided their knowledge to support companies preparing claims. Those HMRC Inspectors were the backbone of the investigative teams within the R&D Units had “specialized” in a particular industry, but they weren’t technically competent professionals. They had benefitted from a number of years of training and it felt like they had a reasonably sound understanding of some of the more technical elements of their area of specialty and a sound knowledge of the CIRD guidelines built up over a number of years supporting previous Inspectors.

Why the change in tack?

Well, this would appear to be a knee jerk reaction to the criticism levelled against the organization during the House of Lords debate on the 2022 Finance Bill towards the end of last year, which took evidence from a number of senior figures from within the Science and Technology community, representatives of the accountancy and tax professionals and a couple of representatives from the R&D Tax Credits Industry. This followed a number of articles by The Times newspaper which highlighted a number of issues with claims being made by companies for such things as Blueberry Croissants, Vegan Menus and reduced temperatures on Launderette washing machines. It also follows the suspected fraudulent abuse of the scheme which saw 8 people, including a tax advisor sent to prison for their roles in a £16m attack involving sham claims for R&D Tax Relief.

Since the pandemic, HMRC have also recruited around 200 new “Case Workers”. These case workers have had 12 – 18 months of training and education in the R&D Tax Credits Scheme Rule book, the Corporate Intangibles and Research and Development (CIRD) Guidelines. They have come from a variety of backgrounds but from anecdotal evidence and a little bit of first-hand experience, that experience is not generally from an Industrial, Mechanical or Technologically focused role.

As highlighted above, this is not new, however, the original inspectors had a lot more experience being involved in enquiries before rising to their lofty positions of responsibility and running their own enquires, they also had a strong network of support, and they weren’t remunerated based on the successful outcome of their enquiries. That is not the case today, the latter is based on supposition, but a number of my fellow professionals believe this to be the case.

The approach to enquiries also appears to have changed significantly. In the past it has always felt as though enquiries were a collaborative approach to ensure that the taxpayer (and the advisor, if there was one) understood the eligibility criteria and that the competent professionals within the company, were able to demonstrate their competence and understood the boundaries of their R&D projects. They would also then be discussing the financial elements and challenging percentages and costs to determine they met the eligibility criteria. Finally, after several weeks of back and forth, If errors were found, there was always a rather mumbled apology along the lines of “well we have found an error, we will have to discuss penalties with you, but you’ve worked with us, If you can provide us with evidence that you can prevent it happening again, then we can probably waive those in this instance.” It was all rather softly, softly and more of an educational experience.

Today’s approach seems to be a blanket “it’s not eligible” and as a result we are going to be charging a penalty, here’s how we calculate penalties. It is also a lot more combative and it’s often not because HMRC are coming from a position of strength. They are often relying on a company fearing penalties and being unwilling to take them to a Tribunal, which is an expensive affair and often more costly than the tax benefit being claimed.

Is it all about combatting fraud and error?

It feels like they are using this fear to prove that there is extensive fraud and error in the SME scheme and use this evidence as the driving reason to harmonise the two schemes into the RDEC scheme.

Granted there is fraud and error within the schemes, they are highly complex and there is clearly evidence of boundary pushing. Some of the other changes like the claim being approved by a senior leader/competent professional, a templated R&D form, pre-notification of an intent to claim, will all go someway to combatting this, but it won’t stop everything.

Having previously reviewed a claim by a top 10 firm of accountants who had used sampling to review a number of projects, they claimed for about 75% of projects, on closer review of each of the projects in the following year, our detailed review established that only around 40% of projects were eligible and this was for a large international company claiming under RDEC, so it is not just limited to the SME scheme or to small consultancy firms seeking to jump on the R&D Tax Credits Gravy Train, it exists in the higher echelons of the accountancy industry.

How to deal with an enquiry?

If you have prepared you own claim and you do get an enquiry, if you have prepared it diligently, don’t panic answer the questions honestly and openly and if you really are worried consult a professional advisor, they might be able to help you, but do it sooner rather than later.

Even if you have prepared a technical report to justify the claim, try not to respond out of frustration “please read the technical report previously submitted”. Whilst the enquiries seem to follow a boiler plate template that is used for every enquiry, don’t just resend them your technical report. That being said, go back to your technical report and seek to answer the questions using the information that you have already included in the report to answer the specific questions being raised. it will show a consistency in your answers.

If they ask for more information than had been provided in the technical report, then provide that information. Expect it to go through 2 or 3 phases at the very least and be prepared for an alternative case worker to pick up the enquiry at some point.

If you would like to have a conversation about an enquiry or your R&D claim before you submit it, you can book some time to discuss your R&D projects with me by booking a free, no obligation discovery session. Good luck!

The post Are you worried about your R&D Tax Credits Claim? appeared first on Cooden Tax Consulting.

Are you now wondering what your SIC Code is? Or even asking what is a SIC code?

Well, it stands for Standard Industrial Classification, if you set your company up at Companies House it’s the little bit of information that you provided to Companies House which described what your business was going to do when it was established. If your business has changed over the last 15 or 20 years it may now not reflect your businesses activity.

Imagine you are Jeff Bezos, setting up Amazon for the first time and you were selling books from your garage, you might have used, 47910 – Retail sale via mail order houses or via internet, if he launched Amazon Web Services from the same company he might have used 63110 – Data processing, hosting and related activities , with Amazon Prime now focused on TV production and broadcasting then 59113 – Television programme production activities and 60200 – Television programming and broadcasting activities or 61200 – Wireless telecommunication activities might also be relevant.

So as your business evolves so should your SIC Code, these days 47910 doesn’t adequately reflect the activities of Amazon, so, it wouldn’t be unreasonable to ask them why they are claiming for £1m of R&D Tax Credits for a mail order book service!

It’s a Hot Topic for HMRC

In fact, it has become so hot that HMRC have two significant recent actions that focus on a company’s SIC Code:

Firstly, their new Additional Information Form that every company submitting an R&D Tax Credits claim after 8^th August 2023 is going to have to complete, asks for the company’s SIC Code, this means they can risk assess claims based on a SIC Code.

Secondly, they recently wrote to several thousand businesses telling them that whilst it isn’t impossible that the company could be undertaking Research and Development they “would not expect to normally receive valid R&D claims in the following business sectors” they went on to list: Care Homes; Childcare Providers; Personal Trainers; Wholesale Retailers; Hairdressers or Beauticians; Restaurants, pubs, bars and cafes; Real Estate Agents; and Educational institutions, which we would tend to agree with, but they went on to include: The service sectors, Textiles industries; the construction industry; and consultancy firms. Which are a little more surprising as certainly textiles and construction are areas where R&D could be happening, perhaps not with every company in these sectors, but certainly some, and the other two seem rather non-specific and catch all!

So, if you only take one thing away from this blog, it should be go and check your SIC code, if it isn’t completely representative of what your business does today, you can list at least four and maybe more at Companies House, so getting adding the most relevant.

If you’d like to know more why about R&D Tax Credits and how they can benefit your business, why not get in touch to arrange a discovery session with me.

The post Could your SIC Code land you in hot water with HMRC? appeared first on Cooden Tax Consulting.

You have one year from the end of the accounting period to prepare and file your tax return, even though you have to pay any tax 9 months and a day after the year end, and something else most people don’t realise is that you then have up until the second anniversary of the year end to make any amendments to that return.

That means when you talk to us about your potential to claim for a project that you are undertaking today, in this financial year, if you have undertaken any similar projects in the two financial periods before this current one, then you could file some historic claims. The deadline is not flexible, it is a very hard deadline, so at the end of the day on the second anniversary of the end of your company’s accounting period the window slams shut.

A couple of examples

Let us assume that today is 1 November 2021. Your company has a December year end. That means  that you are currently in an accounting period for the year ended 31 December 2021, you need to file your tax return for the year ended 31 December 2020, by the end of the year and you also have until the end of the year to amend your tax return for the year ended 31 December 2019.

If you had £25,000 of eligible R&D spend in 2019 and £40,000 of eligible spend in 2020, you could get around £6,200 of tax relief in 2019 and around £9,900 of tax relief in 2020 if you were profitable. If you were loss making you could claim a repayable tax credit of around £8,300 in 2019 and £13,300 in 2020.

However, if your company has a September year end, you’ve just finished your 2021 accounting period and will shortly begin the task of preparing your accounts for 30 September 2021, and you are in the accounting period for 30 September 2022, that means you can still claim R&D Tax Relief for your 30 September 2020 year end by amending your tax return for that year and you could also claim for 30 September 2021 when you prepare your initial return, but you will have just missed the deadline for preparing a claim for 30 September 2019.

Morals have consequences

If there is a moral to this story, it is don’t put off talking to someone about R&D Tax Relief, the longer you delay the more money you are losing. Having a conversation with us about your potential to claim is absolutely free and without obligation, however some firms who cold call, will have their sales team ask some basic qualifying questions and will sign you up to claim before even having that slightly more in depth conversation. If you talk to us, you’ll be talking to an expert and we reckon in 15 minutes of talking to you about your company and the work it has been doing, we’ll have a pretty good idea whether it is worth pursuing a claim.

Book a call today and start that conversation, it could mean you don’t miss out on claiming £000’s back from HM Revenue and Customs.

The post How far back can I Claim R&D Tax Credits appeared first on Cooden Tax Consulting.

Every Autumn, around the end of September or in early October, the Office for National Statistics and HMRC distribute their annual review of the R&D Tax Relief Scheme. This year, they are reporting on claims for the tax year ended 31 March 2020, so “pre-pandemic”, based on claims processed up 30 June 2021, but in what I believe to be a change to recent years, they are also forecasting estimates for returns not yet filed within the figures, which allows for a far better comparison.

A company with a 31 March 2020 year end has until 31 March 2021 to submit an initial tax return which for regular claimants would normally include their claim for the year, but a company has until 31 March 2022 to submit their claim on an amended tax return, regardless of whether they are a regular or new claimant.

Estimated claims have continue to rise

Based on claims received to 30^th June 2021, HMRC estimate that there will be a total of 85,900 claims filed for the year to March 2020 of which 76,225 were under the SME Scheme, so 9,675 were Research and Development Expenditure Credit claims of which more than half (5,305) were from SMEs as subcontractors or who had been the beneficiaries of grants or subsidies for their R&D activity. The scheme has delivered £7.4bn of R&D Tax Relief support to claimant companies, who between them have spent more than £47.5bn on R&D.

Based on these current estimated figures the number of claimants has increased by 16% and the amount claimed in total has increased by 19%. It will be interesting to compare these figures with next years for the period of the pandemic, our experience tells us that there has been significant interest in Research and Development Tax Relief as companies have come out of the other side of the pandemic and been keen to secure additional cashflow from legitimate claims.

Of the £7.4bn claimed £4.4bn has been claimed under the SME scheme making the average SME Scheme claim worth around £57,700, with the median claim a more realistic comparator for first time claimants being £21,500. 63.5% of the £4.4bn paid out for SME scheme claims was for the payable tax credits, by surrendering a current year tax loss.

Where and who are the largest claimers?

The bulk of the claims have come from Companies with their registered office in London and the South East, 35% of the claims and 49% of the value of claims have come from these regions, however these may not necessarily reflect where the R&D is happening.

The three largest sectors for claims remain as Information and Communication, Manufacturing and Professional, Scientific and Technical, between them they make up more than 63% of the claims and more than 69% of the value of claims.

72% of claims were under £50k and the largest number of claims, nearly 15,000 featured in the up to £5k band of tax relief.

Why is it relevant to my business?

We know from our own experience, and these statistics confirm, that there are a large number of companies who are significantly involved in Research and Development activity. However, we also know that many companies are continuing to miss out on claiming for projects that they either undertake in house or subcontract out to others. This is borne out by the statistics, where in the previous year to 31 March 2019, they show that there were nearly 20,000 new claimants. The provisional number of new claimants to March 2020 Is just over 10,000, this is merely a timing difference and not the result of “peak new claimants”.

With the ongoing challenges around recovery in a post-COVID-19 world, shouldn’t you really be looking into whether you can be making a claim? What would your company do with the cash if you were claiming, the median the tax saving of around £21.5k, or the average saving of around £58k? How would those plans change if you found out that your claim was more than £100k, do you have some new machinery you’re looking to install or another new product in the pipeline, awaiting some funding before development can start?

It’s never too late to start

A significant tax saving can make a huge difference to a business. If your company has a December 2019 year end, you have until the end of this calendar year to make a claim, but realistically, you have until the week before Christmas for it to be submitted. It takes us about two weeks from initial discussion to prepare a claim for a highly motivated company.

Why not contact us to find out whether you can be a part of the statistics next year? You can book a free, no obligation #FindOutinFifteenMinutes discovery call with our Director, Simon Bulteel. What’s the worst thing that can happen if he says no after those 15 minutes? Now compare that to receiving a refund of overpaid tax!

Book a call now! 

The post Research and Development Tax Relief statistics are out! appeared first on Cooden Tax Consulting.

You only have to see some of the recent announcements such as:

– Phasing out new Diesel and Petrol Cars by 2030

– Shell installing a network of 50,000 of accessible on-street and on forecourt EV charging points across the UK, through its recently acquired Ubitricity business.

– The Highways agency using Graphene in asphalt to enhance the durability of road surfaces and extending the periods of time between maintenance.

It’s the little things

We’ve been trying to work out how to make our tax consultancy more “Sustainable”, but its difficult, we work from a serviced office so have little impact on the choices of services. We come to work and travelled to our clients through a mixture of train and car, we could use cars less, but they are convenient, but we haven’t really been visiting clients since lockdown ceased. Instead, we have made use of services like Zoom and MS Teams to keep interacting with our customers, so perhaps in a way, we have stumbled into being slightly more sustainable.

We will continue this into the future and mix in a handful of client visits as we move forward. It’s difficult not being on a client’s premises, certainly when it comes to the engineering and manufacturing sectors that we support with Research and Development Tax Credit claims.

Being on site gives you a feel for what’s going on, especially if you have a curious nature, which we tend to have, because of what we do. When we ask questions based on what we see, hear and feel, generally speaking the potential to claim and also the value of the claim increases.

Sustainability doesn’t have to be expensive.  It doesn’t have to be huge grand gestures, it will be the sum of all of the little changes that we make in both our personal lives and in business that will be greater than the whole.

The bigger projects can get support

However, if you are looking for that one big project, that world beating new piece of technology, or an idea to revolutionise the agricultural industry or the renewables industry, or to reduce waste, then it might be expensive, it might be time consuming, but there are plenty of ways that you can find support from government.

There are a number of competitive grant schemes that have sustainable elements at their core, you only have to check out UK Research and Innovation  (www.ukri.org) where there are over 100 opportunities for business funding, granted not all of them are focused on sustainability but there will be a significant number.

Then there’s research and development tax relief. If you are lucky enough to have successfully received a grant, you may be somewhat surprised to hear that you could also benefit from tax relief for spending the grant money. You can claim under the RDEC scheme, whether you are a large company or an SME for the grant funded projects, which for money spent since 1 April 2020 will generate either a tax rebate or a cash injection of up to 10.53% of the eligible costs.

If you are a small company and you either didn’t apply for a grant or weren’t successful in your application, but have decided to go it alone regardless then you could in fact be in line for an even greater cash injection for a loss making company of up to 33.35% of your eligible spend, if you are profitable it will reduce your tax liability by up to 24.7% of the eligible spend.

The last way the government can help is through Patent Box. If your new product is so ground-breaking that you are looking to Patent it and are successful in being granted a patent, you could reduce your tax bill further, because of the profits being generated on the sale of the items being taxed at a reduced rate of 10%.

As we move towards the end of 2021 and in to 2022, we can help you with all of these aspects of funding for innovation, as we have grown our business relationships to include an innovation grants funding expert to our existing family of services, which already focus on R&D and Patent Box.

In the meantime, one of the things that we have already been doing is offering a reduction in our fees for companies that are developing green technology, sustainable agriculture and renewables. We’ve worked with a few companies this year and are looking to find and support more businesses that are working in these high value areas that will help all of us to be a little more sustainable in our lives.

If you would like to have a chat to determine whether you have an eligible project, sustainable or not then you can book a 15 minute call with our director, Simon Bulteel. Get in touch today.

The post Can you make innovation in sustainability financially viable in the short term? appeared first on Cooden Tax Consulting.

There has also been a significant rise in the number of cold calls that businesses are receiving from sales teams at these new “experts”, promising thousands of pounds in cash for your business.

Sounds familiar, I hear you say! Well, that’s because it is. With the closure of the PPI claims industry, a number of people who set up claims’ management companies to make a fast buck, have turned their attention to R&D Tax Credits for the next fast buck.

They are treating the process like a claims’ management company would. Pile in a load of stuff in the funnel let some of it fall by the wayside and pick up the cream at the bottom. They are relying on the fact that HMRC doesn’t have the manpower to check every claim and that if most of them get through, they’ll do all right.

Is that the right way to approach things? Of course it’s not. The idea of R&D Tax Credits is to reward companies who are taking a significant financial risk in developing new, or improving their existing products, processes, materials, devices and software, not to throw a load of spurious brown matter, that might be mud, at a wall and see what sticks.

It is fair to say that the legislation is complicated and that many businesses don’t have the capability to understand it in its entirety, let alone apply it to their circumstances, so there is a place for a genuine expert to support a company to claim.

If you are told claiming is “risk free”, because you won’t pay us a penny until you get your money back, you’ve been told a mistruth, it is risk-free in terms of your liability to the company that prepared your claim, but your liability to HMRC could be significant, with interest levied on refunds that are subsequently clawed back and significant penalties for the most spurious of Tax Credit applications and smaller penalties possible for an incorrect claim.

We’ve been around for 8 years, I’ve been a qualified accountant since the turn of the Millennium, I was involved in my first claim in 2005 and have been preparing claims since then. For the next 8 years it was for my employers in Clinical Research and Motorsport Engineering. Our Lead technical report writer has a PhD in Computational Fluid Dynamics and was a serial researcher at a number of prestigious Universities around the world, before working on the Fuel Systems at Airbus and then working in the IT industry before starting to write technical reports for a number of larger specialists.

Here’s our short checklist of things to do before engaging a R&D Tax Credits Expert

• Check out the business at Companies House to see how long it has been in existence
• Check out previous directorships for the directors of the business on Companies House
• Check out previous roles on Linked In for the owners and staff, is there an expert there?
• Find out what their definition of “Risk Free” is
• Do they have Professional Indemnity Insurance that covers you if they get it wrong?
• Ensure that you receive a copy of the technical report to read through to ensure that what they have written, reflects what you have done. That is in effect what you are paying them for and what HMRC will judge your claim on. If it’s full of lies and inaccuracies, don’t expect HMRC to be lenient because “they didn’t share it with us.”
• Be wary of someone who completely cuts your accountant out of the loop

Are we perfect? 99.5% of the time!

Oh and don’t get me started on the software to support accountants prepare their own claims. If you don’t know what qualifies for R&D Tax Credits how is a piece of software to help you prepare the claim going to help!

If you’d like a no nonsense, reduced risk approach for your R&D Tax Credits claims or an expert to support your clients, get in touch with us and book a 15 minute call.

The post The rise of the unscrupulous R&D Tax Credits expert appeared first on Cooden Tax Consulting.