As accountants and tax advisers we regularly hear HMRC bemoaning tax lost through avoidance and evasion, and their determination to ‘crack down’. A series of lurid media headlines over the past few years, ‘naming and shaming’ various public figures over their alleged tax avoidance activities, is evidence of a very public campaign to ensure that everyone pays their “fair share”.
Far less frequently, however, is it acknowledged that there are just as many, if not more, situations where the ‘boot is on the other foot’, i.e. tax is paid unnecessarily when quite legitimate claims may be made for tax relief. One extremely valuable tax relief, which is claimed by only a small minority of eligible claimants, is R&D tax credits. These credits can allow a claim of 225% of eligible expenditure, so a spend of, say £10,000 would give tax relief of £22,500.
The most common reason for claims being missed is the misconception that R&D means only scientific projects in laboratories, and “people in white coats”, but that is far from the case. R&D is so much more than the next wonder drug or iPhone app. Indeed, we have even encountered cases in the past where certain website developments may give rise to a perfectly valid claim.
Many companies simply do not realise, initially, that a project might fall within the wide definition of R&D, and do not think to claim. Other perceived problems are difficulties in identifying and separating R&D costs from “normal” business expenditure, or a belief that the entire process is complicated, and costly to go through. In fact, these are rarely significantly problematic issues where advice is sought from an R&D specialist.
Perhaps most importantly, R&D experts will usually work on a ‘percentage of tax saved’ basis to give piece of mind, for those considering a claim, that there is no risk of running up a costly bill for professional advice, only to subsequently find that no claim is possible, or ever was. Good R&D consultants, furthermore, will only claim their fee once the valuable tax relief has been agreed and processed by HMRC, never leaving the client out of pocket for even a short time.
In summary, the message is that it costs nothing to ask!
Andrew Cowe, Senior Tax Manager at Brearley & Co