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

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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.

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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.

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.

Tensei think it is ‘Smart to use what is wasted and not waste what is precious’.

This nugget of a company was founded by Annabelle Cox, previously co-founder of SCIN, the UK’s largest materials library and resource based in London, Clerkenwell.  Curiosity and Systemic Design has fuelled her relationship with business.  Early 2013 and on the back of an exhibition at SCIN showcasing materials development inspired by the farm, she realised that there was potentially an opportunity to create technical materials, notably papers, from straw.  Historically, straw has been used in Indo-China as a substitute for wood pulp. Adoption in the West though is another story and for good reason, there was plenty of forestry.

Fast forward to 2016 and change rides wildly into town as the perfect storm of shifting societal habits, resource constraint, climate change and plastic ‘non gratis’ colluded to Tensei’s benefit. We needed and need to look to pastures new and ironically, some answers lie in the field.

So why was this so interesting for Tensei? In a nutshell, Tensei researches, develops, and produces smart and or useful pulps, materials and products using biological systems, notably crop waste, biowaste and grasses.

This may sound simple and to an extent it is but the ‘to do’ list to make change happen for comfortable global adoption of these fibres is extensive: consistency, quality, supply, accreditation are some of the interesting headers.

Whilst Tensei are working hard to supply some of the answers, in part through a new technology platform to deliver on those requirements for adoption, they appreciate that for any innovation to succeed, it needs to work within current operating systems first before it can stretch its legs. Tensei’s approach therefore is to gently tickle Industry into making the change. For example, Tensei specifically work using commercially available pulps at this stage – wheat, bagasse, hemp, jute, bamboo, rice straw, cotton linters, flax but in the future, this will extend to a broader base of fibre from multiple bio waste streams.

To put it into greater context, the paper and board pulp market is currently about 431million tonnes of which non-wood is roughly 3% of the market – 12 million tonnes. ( source FAO)  Yet there is roughly 2.5 billion tonnes of uncollected straw estimated to be available.

A scalable, financially profitable business is of course important but the endemic spirit driving this is the need for the global economy to see the opportunity afforded by this raw material source. It is yet to become the ‘Go to’ material of choice but it waits quietly in the wings. Tensei is one of the drivers towards mainstream adoption of straw or crop waste as a viable, albeit different, resource for multiple industries from packaging to bio composites, textiles to chemicals.

Tensei is diaphanous:  part synthetic biology, part tech and full on environmental in its positioning as a company and ethos.

It sits between ‘Impactful’ and tech. Almost like a person yearning for mindfulness but with formula 1 elbow tweaking.  Like many emerging companies, Tensei is part of the global bioeconomy and according to Forbes:

“The global bioeconomy is about to take off as manufacturers choose biology as the method of choice to efficiently produce high-performance, sustainable products. Synthetic biology is at leading edge of this $4 trillion gold rush”

Part of Tensei’s offering is product based, this helps it to embark on its own R&D projects and demonstrate how it can also commercialise innovation for its customers. To date, Tensei has developed its own papers for food and drink: absorbent papers for uses ranging from pads in soft fruit punnets, bakery and in the future meat, fish and poultry, takeaways. and new recyclable coated laminate papers for a range of products from straws to crisp bags.

So, for those that want to future proof and deliver a genuinely impactful set of product solutions Tensei would love to help solve problems ranging from alternative solutions to plastic to what to do to valorise biowaste. The crop harvest is no longer just about food, it may even one day form part of a satellite construct orbiting earth. For more information on Tensei, visit www.tensei.co.uk.

Tensei have so far been able to claim around £30k for their historic R&D efforts and we are currently preparing claims for more, which will no doubt be used to fund future R&D that this innovative business, with an alternative idea, still has to undertake to widen their product portfolio.

Arrange a “Find Out in Fifteen” discovery session to determine your eligibility to claim. Book a call now!

The post Hello world – meet Tensei appeared first on Cooden Tax Consulting.

Mmmm, well, that’s not really what’s happened over the last 15 months with Covid and all that we have endured as a nation, and to a certain extent as one humanity. When you throw the ongoing impacts of Brexit into the mix as well, I suppose there is some belief at least that the latter part of the headline might actually be true!

However, here in the UK things are beginning to look up. The vaccine roll out continues at pace, being in the 45-49 year old category, I’ve just booked my first jab, I think I may well have had it by the time you get round to reading this! We’re able to go and have a beverage in a pub garden, we can meet outside as either two households or six people and we can finally have our hair cut. The last time my barnet was trimmed was the start of November, just before lockdown 2! It’s a mess and it’s got a lot more grey in it.

And yet despite all of this in our private lives, for many in the food and drink industry your working lives may have changed a bit but the demand for products and services has been maintained, although for some of you, that may be in a slightly different format.

With change comes innovation, and in the UK and a few other countries around the world, with innovation comes tax relief. Now not all innovation is worthy of tax relief, but there are significant elements that do reach the criteria for tax relief.

Developing new products, processes, materials and devices, or significantly improving existing ones could all qualify. The bar requires that a competent professional operating in the field couldn’t have readily deduced the solution, or a group of people having a discussion couldn’t come up with it quickly. Ultimately if it required significant thinking time, then there is some scope to claiming.

It could be that during the pandemic, shortages existed in the supply chain and yet demand for your product continued. If you had to significantly adapt a recipe, by going beyond an established substitution of one product for another and you had to experiment to ensure that there were no discernible differences between the end products, and this required, research and batch trials, you could have a claim.

It’s not just in food and beverage production that there is scope to claim, it’s the development of machinery, processing equipment, cookers, dryers. How you grow the crops and develop new varietals that may be more hardy or resilient to pests, need less fertiliser or treatment during the year.

It can be a real pain trying to establish for yourself whether you think what you have done meets the criteria. There are pages and pages of notes on HMRC’s website, if you’ve never looked, if I’ve piqued your interest you can go to HMRC Internal Manuals or just search for “CIRD80000” in Google or Bing.

Or you could just be brave and say, I don’t need to know that level of detail for myself, I just want to talk to someone about our project or projects, that does know that level of detail because that’s what they do. Well, you’re in the right place, right now.

Get in touch today and book a “Find out in 15 minutes” discovery call with me, there’s no obligation, if you just want to find out if you might be able to claim and go and do it for yourself, be my guest. Good luck! Speak Soon!

The post What innovation or opportunities have arisen in your business? appeared first on Cooden Tax Consulting.

As we have started the new year with encouraging news about vaccines and hopefully a more positive outlook on the year ahead than perhaps we might have had six months ago, when many business owners thoughts were more focused on survival, it’s important to refocus on those sustainability goals that many businesses have.

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 haven’t done so since lockdown. Since the onset of the first lockdown 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, will we maintain this as we come out of the other side of Covid? Who knows? 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 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.

That being said, if in business 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.

Business funding opportunities

There are a number of competitive grant schemes that have these sustainable elements at the 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, particularly with the advent of the government’s Industrial Strategy and its continuing signals that in the new post-Brexit world, we won’t be left behind when it comes to research and innovation.

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 money that you have received from the grant. 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 of up to 10.53% of the eligible costs or in the event you are loss-making a cash injection of the same 10.53%, so in a way you are having your cake and eating it.

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, as a result of the profits being generated on the sale of the items being taxed at a reduced rate of 10%.

How Cooden can help

As we move forward in 2021, our goal is to be able to help you with all of these aspects of funding for innovation, as we look to grow our business by incorporating a business grants element 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 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.

Ultimately it feels like a lot of us accidentally became more sustainable as a result of Covid, but in spite of this, it will be great to put 2020 behind us and make the most of our new discoveries and get back to making good on our original sustainability goals as we grow into 2021.

The post Did sustainability take a back seat to survival in 2020? appeared first on Cooden Tax Consulting.

A product launch is always a fantastic opportunity for a company to celebrate their success. However, this year it’s a bit different, you won’t be doing a hard launch on a stage at a fantastic business exhibition with 100s of your potential customers in front of you. You are going to have consider a soft launch using online and hope that the phone rings.

But this year you’ve read this article, and instead of following in the footsteps of a significant number of your peers and competitors, or indeed your own business last year, you’ve realised that your product launch also represents the point at which a significant failure arises often without anyone really noticing, or even worse caring.

This year you’re going to do something different, you’re going to pick up the phone and have a conversation about Research and Development Tax Credits with an expert.

You could be missing out on R&D Tax Credits

It’s one of those, “unknown, unknown” moments that exist everywhere in business, but after being around for 20 years Research and Development Tax Credits should no longer be one of them, but it is, despite a plethora of “experts” popping up all over the space, shouting about it to accountants and to businesses alike.

Alas, thousands of businesses continue to miss their right to claim this most generous of tax reliefs.

We are but one of those experts, but we do have some substance behind our claims, we’ve been operating for 7 years now (our birthday was 1^st September) and have supported nearly 200 companies to claim more than £16m in R&D Tax Credits claims.

But back to your new product, it’s taken you a while to get from concept to launch, along the way you’ve had Eureka moments and more abject failures than perhaps you would care to mention in polite company.

You and you’re team have no doubt had several more ideas during the same time period and may be one or two of them are still going through the product development process (despite everything Covid threw at you in 2020) and your hoping to launch it in 2021 to a live audience.

Well, the good news is those failures are great news for your cashflow, they clearly weren’t at the time, but they are now. “Why” do I hear you ask? Well, normally your failure would go hand in hand with a scientific or technological challenge that you were trying to overcome. After all, we don’t set out to fail, it just seems to happen naturally! Something that you thought would be straightforward, turned out to be a massive obstacle in your path to success.

Failure presents an R&D Tax Credit opportunity

We celebrate your failure as much, perhaps more than we celebrate your success. It sounds strange and we are in no way some sort of strange voyeur watching your business with a voodoo doll and giving it a prick every now and again just to see what happens.

We celebrate your failure because we know that the failure while difficult in the short term, will open up the opportunity for you to claim Research and Development Tax Credits, whether you are paying tax or not they can boost your cashflow.

The over-riding fundamentals for a claim for R&D Tax Relief are:

• There has to be a project (developing a new/improved product)
• There has to be an advance in science or technology (you probably aren’t going to launch a new product that is worse than what you already have, or than the market already has)
• The advance has to be achieved by overcoming some form of scientific or technological challenge (the only way to overcome these is by learning and adapting through failure)
• The solution to the challenge cannot be readily deducible by a competent professional operating in the field.

If you look back through your new product development, you’ll no doubt see it littered with failures and the one or two products that do make it to the point of launch didn’t get there by some fluke, they got there through overcoming every single technical or scientific challenge you were presented with.

Now you just have one final hurdle to get over, and that hurdle is of your own making, you just have to talk to an expert to confirm that you can claim.

Find out if you are eligible – fast

Book a Find Out in Fifteen Minutes discovery section with our Director, Simon Bulteel, and start your next journey, we promise it will be worth it, just to know, for sure! Get in touch with us, speak to you soon.

The post Launching a new product and claiming R&D Tax Credits appeared first on Cooden Tax Consulting.