In the year 2000, the UK government launched the Research and Development Tax Credit Scheme. Back in those days, R&D was still a deep mystery and there were no bona fide experts, even the people at HMRC were still figuring out how to assess claims and pay them out to deserving companies. In 2020, we’re two decades into the scheme and way beyond the bumbling dawn of the R&D tax credit.

Now there are hundreds of companies competing for the chance to write and submit your R&D tax credit claim. Their value proposition: free money. Ok, somewhat free money. R&D providers will charge anything from a small fixed fee to 30% of your claim value for something that is essentially a fancy essay about your technology and some spreadsheets. This begs the question: Are they worth it?

do you need an r&D advisor

Is getting an R&D advisor worth it? 

The truth is: you can file a bare-bones, home-made claim and have it go through without any issues. You can even file one without any explanation about the technology. Having your claim enquired or adjusted is a question of probability and HMRC manpower. Just like the universal fact that not everybody will get a tax audit, not everyone will get an HMRC enquiry if their claim is weak, unqualifying or incomplete. 

Call it a dirty secret or an obvious truth, but you might be able to calculate your tax credit on the back of a napkin, send it in and have it paid out in 10 weeks with all the other 30-page technical works of art that are sent to HMRC.  

Emphasis on might

As the R&D tax credit is becoming a much more reliable and important source of cash flow for companies in the UK, most cannot base their cashflow (including payroll, office rent, and the kitchen fruit bowl) on “might”. A claim that has not been vetted by someone with a lot of experience could also end up in an enquiry. An HMRC enquiry is the kind of hell you need to have experienced to understand, and it involves a kafkaesque series of calls, emails, clarifications and about 6 months of bureaucratic back and forth. Add to that the fact that your claim could be the subject of a revenue audit up to five years after the year in which the R&D activities took place, and you see why winging it could be bad advice here. 

Working with an accredited R&D advisor who offers enquiry defense as part of their package acts as double insurance: against the event of an enquiry, and, if the enquiry does occur, against the need to deal with it yourself (probably badly, as “bickering on the phone to HMRC” is presumably not your most endorsed skill on LinkedIn). 

do you need an R&D tax incentive advisor?

“Call it a dirty secret or an obvious truth, but you might be able to calculate your tax credit on the back of a napkin, send it in and have it paid out in 10 weeks with all the other 30-page technical works of art that are sent to HMRC. ” 

 

Should I get an R&D advisor when my claim size increases? 

It seems a cruel joke that most R&D providers have a percentage success fee. What is a £2,000 fee on a £10,000 claim quickly escalates to £40,000 when you’re claiming £200,000. It sounds ludicrous to pay this much for paperwork. Yet, it is exactly when the stakes are higher that having an advisor matters most (also, little tip – anything in life can and should be negotiated!)

The smaller a claim, the less likely it is that HMRC will pay special attention to it. Bigger claims, in the order of hundreds of thousands, are often prime targets for enquiries. It’s only natural for the UK government to be careful with its allocation of your hard-earned tax money, and so should you. Having a qualified advisor compile, file and potentially defend your claim can mean the difference between having 6 months of runway or 6 months of anguish explaining to an inspector how you’ve encountered “technical uncertainty” while you were building your shaving simulator app.

Can I get R&D Finance (Advance Funding) without an advisor? 

The short answer: no. 

As the R&D tax credit is the asset that an R&D finance company would lend against, it needs to be handled by an accredited and experienced professional to mitigate both the lender and the borrower’s risk. The risks that a lender faces with a self filed claim are two-fold: that the size of the claim is off and that the claim will go into enquiry and be stuck in HMRC limbo for an undetermined amount of time. Most lenders will not want to risk offering a loan to a company that has or will not file with a qualified advisor. The risk to the borrower is similar: if they end up in an endless enquiry, late fees can become an uncomfortable reality.

To answer your next question: yes, this applies even to companies that have been claiming internally with miraculous success for years. Why? A successful claimant will have 2, 3 or 4 years of experience with HMRC, a successful advisor will have at least a few hundred, which will inevitably include a few enquiries as well. They’ve been in the trenches and know how to speak the HMRC language (related to Klingon, legend has it).

It is in the interest of both the borrower and the lender to make sure the claim goes through as smoothly as possible, to make sure repayment happens on schedule and the nasty sting of late fees is avoided. So, if you’re in the market for R&D finance, it’s best to have a good advisor on your side. 

The final word

The choice of getting or not getting an R&D advisor is a bit like investing. Some people buy treasury bonds and stash some cash under the mattress for a rainy day, some buy Litecoin and exotic mining stocks and hold on for dear life. It’s all about risk preference. You can chance it, of course, and may the odds be ever in your favour, but if you’d like predictability, do go for a good advisor. Also, if you’d like your money early through R&D Finance, a skilled advisor is indispensable.

Hope this helps you on your journey towards getting the most out of your R&D tax credit. Do let us know in the comments what your experience has been in the world of R&D. 

Alexandra Kaschuta

Alex is a tech-focused funding expert, helping innovative companies grow through innovative funding through her work at Fundsquire. She also has a background in journalism, having written for outlets like Vice and many others in the past on topics ranging from philosophy to economics.